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Paper oil, Minsky financial instability hypothesis and casino capitalism

 Why Peak Oil Threatens the Casino Capitalism

News Peak Cheap Energy and Oil Price Slump Recommended Links The idea of Minsky moment Oil glut fallacy Neoliberalism as a New Form of Corporatism Great condensate con
Paper oil and record oil futures trading volumes Oil prices and debt bubble Slightly skeptical view of oil price forecasts        
Russia oil production Deflation of the USA shale oil bubble MSM propagated myth about Saudis defending this market share Iran return to western oil markets fearmongering

Slightly skeptical view of oil price forecasts

 

Oil consumption growth Secular Stagnation
 Energy returned on energy invested (ERoEI) Energy Geopolitics Energy Bookshelf Bakken Reality Check Junk bond bubble Energy disinformation agency and friends US military energy consumption
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Note: This article sounds pretty counterintuitive in view of current slump of oil prices with a barrel of oil prices below $30 (more then 4 times drop from the highest level achieved.), In other words, instead of peak oil temporary the world is living in the regime of "oil glut" (which is a misnomer, as in reality this is an overproduction of condensate not oil, but at least low prices are real). 

But the key reason for this was extremely rapid increase  of production in the US and Canada in 2012-2014 fueled by cheap credit. Essentially producing "subprime oil" and in parallel the stream of junk bonds that will never be repaid (aka subprime oil as a Ponzi scheme).

At the same time this was not a revolution but a retirement party as fundamental did not change -- abundance of credit for shale oil and tar sand project was just a side effect of QE.

Reprinted from: Commentary: Why Peak Oil Threatens the International Monetary System By Erik Townsend

| January 6, 2013 (Note: Commentaries do not necessarily represent the position of ASPO-USA. )

Introduction

Having spent the last several years of my life engineering investment strategies to profit from the inevitability of Peak Oil, I’ve become obsessed with understanding the ramifications of radically different energy supply dynamics on the global economy. There are many facets to this, some obvious and some not so obvious. So when ASPO-USA Executive Director Jan Mueller approached me at the end of this year’s conference in Austin and asked for an article discussing the less obvious economic impacts of Peak Oil, I knew instantly that the topic should be the threat Peak Oil poses to the International Monetary System (IMS). This connection is critically important, but far from obvious.

I assure you that this story is very much about Peak Oil, but please bear with me, as I’ll need to start by reviewing what the IMS is and how it came about in the first place. Then I’ll explain the role energy has already played in shaping the present-day IMS, and finally, I’ll tie this back to Peak Oil by explaining why rising energy prices could very well be the catalyst that will cause the present system to fail.

What is the International Monetary System?

At the end of World War II, many countries were literally lying in ruin, and needed to be rebuilt. It was clear that international trade would be very important going forward, but how would it work? World leaders recognized the need to architect a new monetary system that would facilitate international trade and allow the world to rebuild itself following the most devastating war in world history.

A global currency was out of the question because the many countries of the world valued their sovereignty, and wanted to continue to issue their own domestic currencies. In order for international trade to flourish, a system was needed to allow trade between dozens of different nations, each with its own currency.

A convention was organized by the United Nations for the purpose of bringing world leaders together to architect this new International Monetary System. The meetings were held in July, 1944 at the Mt. Washington Hotel in Bretton Woods, New Hampshire, and were attended by 730 delegates representing all 44 allied nations. The official name for the event was the United Nations Monetary and Financial Conference, but it would forever be remembered as The Bretton Woods Conference.

To this day, the system designed in those meetings remains the basis for all international trade, and is known as the Bretton Woods System. The system has evolved quite a bit since its inception, but its core principles remain the basis for all international trade. I’m going to focus this article on the parts of the system which I believe are now at risk of radical change, with Peak Oil the most likely catalyst to bring about that change. Readers seeking a deeper understanding of the system itself should refer to the Further Reading section at the end of this article.

Why is an International Monetary System needed?

It simply wouldn’t be practical for all countries to sell their export products to other countries in their own currencies. If one had to pay for wine from France in French Francs (there was no Euro currency in 1944), and then pay to import a BMW automobile in German Marks, then pay for copper produced in Chile in Pesos, each country would face an overwhelming burden just maintaining reserve deposits of all the various world currencies. The system of trade would be very inefficient. For centuries, this problem has been solved by using a single standard currency for all international trade.

Because a standard-currency system dictates that each nation’s central bank will need to maintain a reserve supply of the standard currency in order to facilitate international trade, the standard currency is known as the reserve currency. At various times in history, the Greek Drachma, the Roman Denari, and the Islamic Dinar have served as de-facto reserve currencies. Prior to World War II, the English Pound Sterling was the international reserve currency.

Throughout history, reserve currencies came into and out of use through happenstance. The Bretton Woods conference marked the first time that a global reserve currency was established by formal treaty between cooperating nations. The currency chosen was, of course, the U.S. Dollar.

How does the IMS work?

The core of the system was the U.S. Dollar serving as the standard currency for international trade. To assure other nations of the dollar’s value, the U.S. Treasury would guarantee that other nations could convert their U.S. dollars into gold bullion at a fixed exchange rate of $35/oz. Other nations would then “peg” their currencies to the U.S. dollar at a fixed rate of exchange. Each nation’s central bank would be responsible for “defending” the official exchange rate to the U.S. dollar by offering to buy or sell any amount of currency bid or offered at that price. This meant each nation would need to keep a healthy reserve of U.S. dollars on hand to service the needs of domestic businesses wishing to convert money between the local currency and the U.S. dollar.

By design, the effect of the system was that each national currency was indirectly redeemable for gold. This was true because each nation’s central bank guaranteed convertibility of its own currency to U.S. dollars at some fixed rate of exchange, and the U.S. Treasury guaranteed convertibility of U.S. dollars to gold at a fixed rate of $35/oz. So long as all of the governments involved kept their promises, each nation’s domestic currency would be as good as gold, because it was ultimately convertible to gold. United States President Richard Nixon would break the most central promise of the entire system (U.S. dollar convertibility for gold) on August 15, 1971. I’ll come back to that event later in this article.

Triffin’s Dilemma

In 1959, three years after M. King Hubbert’s now-famous Peak Oil predictions, economist Robert Triffin would make equally prescient predictions about the sustainability of the “new” IMS, which was then only 15 years old. Sadly, Triffin’s predictions, like Hubbert’s, would be ignored by the mainstream.

The whole reason for choosing the U.S. dollar as the global reserve currency was that without a doubt, the U.S.was the world’s strongest credit in 1944. To assure confidence in the system, the strongest, most creditworthy currency on earth was chosen to serve as the standard unit of account for global trade. To eliminate any question about the value of the dollar, the system was designed so that any international holder of U.S. dollars could convert those dollars to gold bullion at a pre-determined fixed rate of exchange. Dollars were literally as good as gold.

Making the USD the world’s reserve currency created an enormous international demand for more dollars to meet each nation’s need to hold a reserve of dollars. The USA was happy to oblige by printing up more greenbacks. This provided sufficient dollars for other nations to hold as foreign exchange reserves, while at the same time allowing the U.S.to spend beyond its means without facing the same repercussions that would occur were it not the world’s reserve currency issuer.

Triffin observed that if you choose a currency because it’s a strong credit, and then give the issuing nation a financial incentive to borrow and print money recklessly without penalty, eventually that currency won’t be the strongest credit any more! This paradox came to be known as Triffin’s Dilemma.

Specifically, Triffin predicted that as issuer of the international reserve currency, the USA would be prone to over consumption, over-indebtedness, and tend toward military adventurism. Unfortunately, the U.S. Government would prove Triffin right on all three counts.

Triffin correctly predicted that the USA would eventually be forced off the gold standard. The international demand for U.S. dollars would allow the USA to create more dollars than it otherwise could have without bringing on domestic inflation. When a country creates too much of its own currency and that money stays in the country, supply-demand dynamics kick in and too much money chasing too few goods and services results in higher prices. But when a country can export its currency to other nations who have an artificial need to hold large amounts of that currency in reserve, the issuing country can create far more money than it otherwise could have, without causing a tidal wave of domestic inflation.

Nixon proves Triffin right

By 1970, the U.S.had drastically over-spent on the Vietnam War, and the number of dollars in circulation far outnumbered the amount of gold actually backing them. Other nations recognized that there wasn’t enough gold in Fort Knox for the U.S.to back all the dollars in circulation, and wisely began to exchange their excess USDs for gold. Before long, something akin to a run on the bullion bank had begun, and it became clear that the USA could not honor the $35 conversion price indefinitely.

On August 15, 1971, President Nixon did exactly what Triffin predicted more than a decade earlier: he declared force majeure, and defaulted unilaterally on the USA’s promise to honor gold conversion at $35/oz, as prescribed by the Bretton Woods accord.

Of course Nixon was not about to admit that the reason this was happening was that the U.S. Government had abused its status as reserve currency issuer and recklessly spent beyond its means. Instead, he blamed “speculators”, and announced that the United States would suspend temporarily the convertibility of the Dollar into gold. Forty-two years later, the word temporarily has taken on new meaning.

Exorbitant Privilege

With the whole world conducting international trade in U.S. dollars, nations with large export markets wound up with a big pile of U.S. dollars (payments for the goods they exported). The most obvious course of action for the foreign companies who received all those dollars as payment for their exported products would be to exchange the dollars on the international market, converting them into their own domestic currencies. What may not be obvious at first glance is that there would be catastrophic unintended consequences if they actually did that.

If all the manufacturing companies in Japan or China converted their dollar revenues back into local currency, the act of selling dollars and buying their domestic currencies would cause their own currencies to appreciate markedly against the dollar. The same holds true for oil exporting countries. If they converted all their dollar revenues back into their own currencies, doing so would make their currencies more expensive against the dollar. That would make their exports less attractive because, being priced in dollars, they would fetch lower and lower prices after being converted back into the exporting nation’s domestic currency.

The solution for the exporting nations was for their central banks to allow commercial exporters to convert their dollars for newly issued domestic currency. The central banks of exporting nations would wind up with a huge surplus of U.S. dollars they needed to invest somewhere without converting them to another currency. The obvious place to invest them was into U.S. Government Bonds.

This is the mechanism through which the reserve currency status of the dollar creates artificial demand for U.S. dollar-denominated treasury debt. That artificial demand allows the United States government to borrow money from foreigners in its own currency, something most nations cannot do at all. What’s more, this artificial demand for U.S. Treasury debt allows the USA to borrow and spend far more borrowed foreign money than it would otherwise be able to, were it not the world’s reserve currency issuer. The reason is that, if not for the artificial need to hold dollar reserves, foreign lenders would be much less inclined to purchase U.S. debt, and would therefore demand much higher interest rates. Similarly, the more that international trade has grown as a result of globalization, the more the United States’ exorbitant privilege has grown.

Have you ever wondered why China, Japan, and the oil exporting nations have such enormous U.S. Treasury bond holdings, despite the fact that they hardly pay any interest these days? The reason is definitely not because those nations think 1.6% interest on a 10-year unsecured loan to a nation known to have a reckless spending habit is a good investment. It’s because they have little other choice. The more their own economies rely on exports priced in dollars, the more they need to keep their own currencies attractively priced relative to the U.S. dollar in order for their exports to remain competitive on the international market. To achieve that outcome, they must hold large reserves denominated in U.S. dollars. That’s why China and Japan – major export economies – are the biggest foreign holders of U.S. debt.

The net effect of this system is that the USA gets to borrow money from foreigners at artificially low interest rates. Moreover, the USA can become over-indebted without the usual consequences of increasing borrowing cost and declining creditworthiness. Other nations have little choice but to maintain a large reserve supply of dollars as the international trade currency. But the U.S. has no need to maintain large reserves of other nations’ currencies, because those currencies are not used in international trade.

By the mid-1960s, this phenomenon became known as exorbitant privilege: That phrase refers to the ability of the USA to go into debt virtually for free, denominated in its own currency, when no other nation enjoys such a privilege. The phrase exorbitant privilege is often attributed to French President Charles de Gaulle, although it was actually his finance minister, Valery Giscard d’Estaing, who coined the phrase.

What’s important to understand here is that the whole reason the U.S. can get away with running trillion-dollar budget deficits without the bond market revolting (a la Greece) is because of exorbitant privilege. And that privilege is a direct consequence of the U.S. dollar serving as the world’s reserve currency. If international trade were not conducted in dollars, exporting nations (both manufacturers and oil exporters) would no longer need to hold large reserves of U.S. dollars.

Put another way, when the U.S. dollar loses its reserve currency status, the U.S. will lose its exorbitant privilege of spending beyond its means on easy credit. The U.S. Treasury bond market will most likely crash, and borrowing costs will skyrocket. Those increased borrowing costs will further exacerbate the fiscal deficit. Can you say self-reinforcing vicious cycle?

But wait… Wasn’t Gold convertibility the whole basis of the system?

If the whole point of the Bretton Woods system was to guarantee that all the currencies of the world were “as good as gold” because they were convertible to U.S. dollars, which in turn were promised to be convertible into gold… And then President Nixon broke that promise in 1971… Wouldn’t that suggest that the whole system should have blown up in reaction to Nixon slamming the gold window shut in August of ’71?

Actually, it almost did. But miraculously, the system has held together for the last 42 years, despite the fact that the most fundamental promise upon which the system was based no longer holds true. To be sure, the Arabs were not happy about Nixon’s action, and they complained loudly at the time, rhetorically asking why they should continue to accept dollars for their oil, if those dollars were not backed by anything, and might just become worthless paper. After all, if U.S. dollars were no longer convertible into gold, what value did they really have to foreigners? The slamming of the gold window by President Nixon in 1971 was not the only cause of the Arab oil embargo, but it was certainly a major influence.

What’s holding the IMS together?

Why didn’t the rest of the world abandon the dollar as the global reserve currency in reaction to the USA unilaterally reneging on gold convertibility in 1971? In my opinion, the best answer is simply “Because there was no clear alternative”. And to be sure, the unmatched power of the U.S.military had a lot to do with eliminating what might otherwise have been attractive alternatives for other nations.

U.S. diplomats made it clear to Arab leaders that they wanted the Arabs to continue pricing their oil in dollars. Not just for U.S.customers, but for the entire world. Indeed, U.S. leaders at the time understood all too well just how much benefit the USA derives from exorbitant privilege, and they weren’t about to give it up.

After a few years of tense negotiations including the infamous oil embargo, the so-called petro-dollar business cycle was born. The Arabs would only accept dollars for their oil, and they would re-invest most of their profits in U.S. Treasury debt. In exchange for this concession, they would come under the protectorate of the U.S. military. Some might even go so far as to say that the U.S. government used the infamous Mafia tactic of making the Arabs an “offer they couldn’t refuse” – forcing oil producing nations to make financial concessions in exchange for “protection”.

With the Arabs now strongly incented to continue pricing the world’s most important commodity in U.S. dollars, the Bretton Woods system lived on. No longer constrained by the threat of a run on its bullion reserves, the U.S. kicked its already-entrenched practice of borrowing and spending beyond its means into high gear. For the past 42 years, the entire world has continued to conduct virtually all international trade in Dollars. This has forced China, Japan, and the oil exporting nations to buy and hold an enormous amount of U.S. Treasury debt. Exorbitant privilege is the key economic factor that allows the U.S.to run trillion dollar fiscal deficits without crashing the Treasury bond market. So far.

There’s a limit to how long this can last

But how long can this continue? The U.S.debt-to-GDP ratio now exceeds 100%, and the U.S. has literally doubled its national debt in the last 6 years alone. It stands to reason that eventually, other nations will lose faith in the dollar and start conducting business in some other currency. In fact, that’s already started to happen, and it’s perhaps the most important, under-reported economic news story in all of history.

Some examples…China and Brazil are now conducting international trade in their own currencies, as are Russia and China. Turkey and Iran are trading oil for gold, bypassing the dollar as a reserve currency. In that case, US sanctions are a big part of the reason Iran can’t sell its oil in dollars. But I wonder if President Obama considered the undermining effect on exorbitant privilege when he imposed those sanctions. I fear that the present U.S. government doesn’t understand the importance of the dollar’s reserve currency role nearly as well as our leaders did in the 1970s.

The Biggest Risk We Face is a US Bond and Currency Crisis

To be sure, Peak Oil in general represents a monumental risk to humanity because it’s literally impossible to feed all 7+ billion people on the planet without abundant energy to run our farming equipment and distribution infrastructure. But the risks stemming directly from declining energy production are not the most imposing, in my view.

Decline rates will be gradual at first, and it will be possible, even if unpopular, to curtail unnecessary energy consumption and give priority to life-sustaining uses for the available supply of liquid fuels. In my opinion, the greatest risks posed by Peak Oil are the consequential risks. These include resource wars between nations, hoarding of scarce resources, and so forth. Chief among these consequential risks is the possibility that the Peak Oil energy crisis will be the catalyst to cause a global financial system meltdown. In my opinion, the USA losing its reserve currency status is likely to be at the heart of such a meltdown.

A good rule of thumb is that if something is unsustainable and cannot continue forever, it will not continue forever. The present incarnation of the IMS, which affords the United States the exorbitant privilege of borrowing a seemingly limitless amount of its own currency from foreigners in order to finance its reckless habit of spending beyond its means with trillion-dollar fiscal deficits, is a perfect example of an unsustainable system that cannot continue forever.

But the bigger the ship, the longer it takes to change course. The IMS is the biggest financial ship in the sea, and miraculously, it has remained afloat for 42 years after the most fundamental justification for its existence (dollar-gold convertibility) was eliminated. How long do we have before the inevitable happens, and what will be the catalyst(s) to bring about fundamental change? Those are the key questions.

In my opinion, the greatest risk to global economic stability is a sovereign debt crisis destroying the value of the world’s reserve currency. In other words, a crash of the U.S. Treasury Bond market. I believe that the loss of reserve currency status is the most likely catalyst to bring about such a crisis.

The fact that the United States’ borrowing and spending habits are unsustainable has been a topic of public discussion for decades. Older readers will recall billionaire Ross Perot exclaiming in his deep Texas accent, “A national debt of five trillion dollars is simply not sustainable!” during his 1992 Presidential campaign. Mr. Perot was right when he said that 20 years ago, but the national debt has since more than tripled. The big crisis has yet to occur. How is this possible? I believe the answer is that because the U.S. dollar is the world’s reserve currency and is perceived by institutional investors around the globe to be the world’s safest currency, it enjoys a certain degree of immunity derived from widespread complacency.

But that immunity cannot last forever. The loss of reserve currency status will be the forcing function that begins a self-reinforcing vicious cycle that brings about a U.S. bond and currency crisis. While many analysts have opined that the USA cannot go on borrowing and spending forever, relatively few have made the connection to loss of reserve currency status as the forcing function to bring about a crisis.

We’re already seeing small leaks in the ship’s hull. China openly promoting the idea that the yuan should be asserted as an alternative global reserve currency would have been unthinkable a decade ago, but is happening today. Major international trade deals (such as China and Brazil) not being denominated in US dollars would have been unthinkable a decade ago, but are happening today.

So we’re already seeing signs that the dollar’s exclusive claim on reserve currency status will be challenged. Remember, when the dollar loses reserve currency status, the U.S.loses exorbitant privilege. The deficit spending party will be over, and interest rates will explode to the upside. But to predict that this will happen right now simply because the system is unsustainable would be unwise. After all, by one important measure the system stopped making sense 42 years ago, but has somehow persisted nonetheless. The key question becomes, what will be the catalyst or proximal trigger that causes the USD to lose reserve currency status, igniting a U.S. Treasury Bond crisis?

Elevated Risk

It’s critical to understand that the USA is presently in a very precarious fiscal situation. The national debt has more than doubled in the last 10 years, but so far, there don’t seem to have been any horrific consequences. Could it be that all this talk about the national debt isn’t such a big deal after all?

The critical point to understand is that while the national debt has more than doubled, the U.S. Government’s cost of borrowing hasn’t increased at all. The reason is that interest rates are less than half what they were 10 years ago. Half the interest on twice as much principal equals the same monthly payment, so to speak. This is exactly the same trap that subprime mortgage borrowers fell into. First, money is borrowed at an artificially low interest rate. But eventually, the interest rate increases, and the cost of borrowing skyrockets. The USA is already running an unprecedented and unsustainable $1 trillion+ annual budget deficit. All it would take to double the already unsustainable deficit is for interest rates to rise to their historical norms.

This all comes back to exorbitant privilege. The only reason interest rates are so low is that the Federal Reserve is intentionally suppressing them to unprecedented low levels in an attempt to combat deflation and resuscitate the economy. The only reason the Fed has the ability to do this is that foreign lenders have an artificial need to hold dollar reserves because the USD is the global reserve currency. They would never accept such low interest rates otherwise. Loss of reserve currency status means loss of exorbitant privilege, and that in turn means the Fed would lose control of interest rates. The Fed might respond by printing even more dollars out of thin air to buy treasury bonds, but in absence of reserve currency status, doing that would cause a collapse of the dollar’s value against other currencies, making all the imported goods we now depend on unaffordable.

In summary, the U.S. Government has repeated the exact same mistake that got all those subprime mortgage borrowers into so much trouble. They are borrowing more money than they can afford to pay back, depending solely on “teaser rates” that won’t last. The U.S. Government’s average maturity of outstanding treasury debt is now barely more than 5 years. This is analogous to cash-out refinancing a 30-year fixed mortgage, replacing it with a much higher principal balance in a 3-year ARM that offers an initial teaser rate. At first, you get to borrow way more money for the same monthly payment. But eventually the rate is adjusted, and the borrower is unable to make the higher payments.

The Janszen Scenario

When it comes to evaluating the risk of a U.S. sovereign debt and currency crisis, most mainstream economists dismiss the possibility out of hand, citing the brilliant wisdom that “the authorities would never let such a thing happen”. These are the same people who were steadfastly convinced that housing prices would never crash in the United States because they never had before, and that Peak Oil is a myth because the shale gas boom solves everything (provided you don’t actually do the math).

At the opposite extreme are the bloggers on the Internet whom I refer to as the Hyperinflation Doom Squad. Their narrative generally goes something like this: Suddenly, when you least expect it, foreigners will wise up and realize that the U.S. national debt cannot be repaid in real terms, and then there will be a panic that results in a crash of the U.S. Treasury market, hyperinflation of the U.S. dollar, and declaration of martial law. This group almost always cites the hyperinflations of Zimbabwe and Argentina as “proof” of what’s going to happen in the USA any day now, but never so much as acknowledges the profound differences in circumstances between the USA and those countries. These folks deserve a little credit for having the right basic idea, but their analysis of what could actually happen simply isn’t credible when examined in detail.

Little-known economist Eric Janszen stands out as an exception. Janszen is the only credible macroeconomic analyst I’m aware of who realistically acknowledges just how real and serious the threat of a U.S. sovereign debt crisis truly is. But his analysis of that risk is based on credible, level-headed thinking complemented by solid references to legitimate economic theory such as Triffin’s Dilemma. Unlike the Doom Squad, Janszen does not rely on specious comparisons of the USA to small, systemically insignificant countries whose past financial crises have little in common with the situation the USA faces. Instead, Janszen offers refreshingly sound, well constructed arguments. Many of the concepts discussed in this article reflect Janszen’s work.

Janszen also happens to be the same guy who coined the phrase Peak Cheap Oil back in 2006, drawing an important distinction between the geological phenomenon of Hubbert’s Peak and the economic phenomenon which begins well before the actual peak, due to increasing marginal cost of production resulting from ever-increasing extraction technology complexity.

“But there’s no sign of inflation…” (Hint: It’s coming)

Janszen has put quite a bit of work into modeling what a U.S. bond and currency crisis would look like. He initially called this KaPoom Theory, because history shows that brief periods of marked deflation (the ‘Ka’) usually precede epic inflations (the ‘Poom’). He recently renamed this body of work The Janszen Scenario.

Briefly summarized, Janszen’s view is that the U.S. has reached the point where excessive borrowing and fiscal irresponsibility will eventually cause a catastrophic currency and bond crisis. He believes that all that’s needed at this point is a proximal trigger, or catalyst, to bring about such an outcome. He thinks there are several potential triggers that could bring such a crisis about, and chief among the possibilities is the next Peak Cheap Oil price spike.

How Peak Oil could cause a Bond and Currency Crisis

There are several ways that an oil price spike could trigger a U.S. bond and currency crisis. Energy is an input cost to almost everything else in the economy, so higher oil prices are very inflationary. The Fed would be hard pressed to continue denying the adverse consequences of quantitative easing in a high inflation environment, and that alone could be the spark that leads to higher treasury yields. The resulting higher cost of borrowing to finance the national debt and fiscal deficit would be devastating to the United States.

A self-reinforcing vicious cycle could easily begin in reaction to oil price-induced inflation alone. But we must also consider how an oil price shock could lead to loss of USD reserve currency status, and therefore, loss of U.S. exorbitant privilege. In the 1970s, the USA represented 80% of the global oil market. Today we represent 20%, and demand growth is projected to come primarily from emerging economies. In other words, the rationale for oil producers to keep pricing their product in dollars has seriously deteriorated since the ‘70s. The more the global price of oil goes up, the more the U.S. will source oil from Canadian tar sands and other non-OPEC sources. That means less and less incentive for the OPEC nations to continue pricing their oil in dollars for all their non-U.S. customers.

Iran and Turkey have already begun transacting oil sales in gold rather than dollars. What if the other oil exporting nations wake up one morning and conclude “Hey, why are we selling our oil for dollars that might some day not be worth anything more than the paper they’re printed on?” Oil represents a huge percentage of international trade, so if oil stopped trading in dollars, that alone would be reason for most nations to reduce the very large dollar reserves they now hold. They would start selling their U.S. treasury bonds, and that could start the vicious cycle of higher interest rates and exploding borrowing costs for the U.S. Government. The precise details are hard to predict. The point is, the system is already precarious and vulnerable, and an oil price shock could easily detonate the time bomb that’s already been ticking away for more than two decades.

What if U.S. Energy Independence claims were true?

There’s another angle here. Peak Oil just might be the catalyst to cause the loss of U.S. exorbitant privilege, even without an oil price shock.

Astute students of Peak Oil already know better than to believe the recently-popularized political rhetoric claiming that the USA will soon achieve energy independence, thanks to the shale oil and gas boom. To be sure, the Bakken, Eagle Ford, and various other U.S. oil and gas plays are a big deal. The most optimistic forecasts I’ve seen show these plays collectively ramping up to as much as 4.8 million barrels per day of production, which is equivalent to about ½ of Saudi Arabia’s current production.

But the infamous “wedge of hope” chart from the EIA projects production declines from existing global resources of 60 million barrels per day by 2030. By the most optimistic projections, all the exciting new plays in the U.S. will replace less than 5 million barrels per day. Where the other 55 million barrels per day will come from remains a mystery! And of course the politicians never bother to mention such minor details when they make predictions of energy independence.

But let’s just pretend for a moment that hyperbole is reality, and that the USA will achieve energy-independence in just a few years’ time. Now consider the consequences to the IMS. The oil-exporting nations would lose the USA as their primary export customer, and would no longer have an incentive to price their oil in dollars, or to maintain large dollar reserves. They would start selling off their U.S. treasury bonds, and pricing their oil in something other than dollars. Large oil importers like China and Japan would stop paying for oil in dollars, and would no longer need to maintain present levels of U.S. dollar reserves. So they too would start selling U.S. treasury bonds, pushing up U.S. interest rates in the process. Once again, we have the ingredients for a self-reinforcing vicious cycle of increasing U.S. interest rates causing U.S. Government borrowing costs to skyrocket.

Without the artificial demand for treasury debt created by exorbitant privilege, the U.S. would be unable to finance its federal budget deficit. The Federal Reserve might respond with even more money printing to monetize all the government’s borrowing needs, but without the international demand that results from the dollar’s reserve currency status, the dollar would crash in value relative to other currencies as a result of excessive monetization by the Fed. The resulting loss of principal value would cause even more international holders of U.S. Treasury debt to panic and sell their holdings. Once again, a self-reinforcing vicious cycle would develop, with consequences for the United States so catastrophic that the 2008 event would pale in contrast.

Rambo to the Rescue?

Let’s not forget that the USA enjoys virtually unchallenged global military hegemony. China is working hard to build out its “blue water navy”, including strategic ballistic missile nuclear submarine capability. But the USA is still top dog on the global power stage, and if the USA was willing to use its nuclear weapons, it could easily defeat any country on earth, except perhaps China and Russia.

While the use of nuclear weapons in an offensive capacity might seem unthinkable today, the USA has yet to endure significant economic hardship. $15/gallon gasoline from the next Peak Cheap Oil price shock coupled with 15% treasury yields and a government operating in crisis mode just to hold off systemic financial collapse in the face of rampant inflation would change the mood considerably.

All the USA has to do in order to secure an unlimited supply of $50/bbl imported oil is to threaten to nuke any country refusing to sell oil to the U.S. for that price. Unthinkable today, but in times of national crisis, morals are often the first thing to be forgotten. We like to tell ourselves that we would never allow economic hardship to cause us to lose our morals. But just look at the YouTube videos of riots at Wal-Mart over nothing more than contention over a limited supply of boxer shorts marked down 20% for Black Friday. What we’ll do in a true crisis that threatens our very way of life is anyone’s guess.

If faced with the choice between a Soviet-style economic collapse and abusing its military power, the USA just might resort to tactics previously thought unimaginable. Exactly what those tactics might be and how it would play out are unknowable. The point is, this is a very complex problem, and a wide array of factors including military capability will play a role in determining the ultimate outcome.

I certainly don’t mean to predict such an apocalyptic outcome. All I’m really trying to say is that the military hegemony of the USA will almost certainly play into the equation. Even if there is no actual military conflict, the ability of the U.S. to defeat almost any opponent will play into the negotiations, if nothing else.

Conclusions

The current incarnation of the International Monetary System, in which the USA enjoys the exorbitant privilege of borrowing practically for free, and is therefore able to pursue reckless fiscal policy with immunity from the adverse consequences that non-reserve currency issuing nations would experience by doing so, cannot continue indefinitely. Therefore, it will not continue indefinitely. How and when it will end is hard to say, especially considering the fact that it’s already persisted for 42 years after it stopped making sense. The system will continue to operate until some catalyst or trigger event brings about catastrophic change.

The next Peak Cheap Oil price spike is not the only possible catalyst to bring about a U.S. bond and currency crisis, but it’s the most likely candidate I’m aware of. I don’t believe that U.S. energy independence is possible, but if it were, the end of oil imports from the Middle East would also be the catalyst to end exorbitant privilege and bring about a U.S.bond and currency crisis. To summarize, the music hasn’t stopped quite yet, but when it does, this will end very, very badly. I’m pretty sure we’re on the last song, but I don’t know how long it has left to play.

Further Reading

Erik Townsend is a hedge fund manager based in Hong Kong.


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[May 20, 2019] May be tensions with Iran is the USA neocons strategy of containing China by depriving it economy of oil

China is Iran strategic ally. It will continue to buy Iranian oil.
May 20, 2019 | www.nakedcapitalism.com

charles 2 , May 20, 2019 at 6:43 am

Or maybe it is just one front: I.e. making globalisation difficult for the Chinese :
by pushing non Chinese Asians countries to de-integrate their supply chains with China and
by cutting its supply of oil though shortages induced by tensions in the Gulf.
The US knows that it can't be the sole superpower anymore any longer, so the strategy is to reverse globalisation so that no other global superpower (a Russian-Chinese with a dominating Persia in the Middle East) can emerge.
Far too early to say if the strategy will be successful or not.
As far as I am concerned, the silver linings would be that a long period of oil shortage could finally be the trigger to switch industrial infrastructure worldwide away from liquid and gaseous fossils, and that less globalised supply chain would be more robust to shocks, but if these silver linings were the ultimate goals, I could think of less adversarial ways to achieve that globally, with less money wasted on the military

jackson , May 20, 2019 at 8:41 am

The benefits of joint pricing mechanisms are also enormous. Currently, Iran has no choice because of the sanctions but to sell its oil – including from the shared fields – at massively reduced pricing that is comprised of its official selling price (OSP) minus the sanctions discount minus the incremental risk discount. This has resulted in Iran offering 'cost, insurance, and freight' cargoes for 'free on board' pricing, with the difference between the two covered by Iran. "Under this new agreement, Iranian oil from these shared fields will be sold based on Iraq's much higher three month moving average OSP pricing for cargoes, with no discounts at all, and the three month moving average for the effective spot market that Iraq has created and now controls," said the oil source.

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Geo , May 20, 2019 at 3:02 am

Thanks for the in-depth info. Lots to digest and research.

the US has acted in such bad faith so often in the early stages of conflicts that it's sensible to wonder how much of this account is accurate. It is very frustrating to be dealing with an informational hall of mirrors.

It's depressing to say but I when I read anything from domestic official sources or the media I can't help but think it's mostly lies. Not under the illusion that foreign actors are all righteous and benevolent, but as you said, our nation's track record with the truth in these scenarios is pretty tainted at this point. Just as we found out with Saddam and Qaddafi, these leaders have little reason to poke the dragon, and a lot of reason to build up defenses.

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PlutoniumKun , May 20, 2019 at 5:35 am

Interesting observations if true, and they certainly do make sense of a lot of the things that have been happening.

I see it hasn't dissuaded Trump though, this morning he is reported as doubling down on his threats to Iran. A big fear now is that Iran does not seem to be in the mood to give Trump the sort of symbolic 'win' he can use to climb down gracefully (and sack Bolton). The Saudi's can probably be scared into stepping back, but the Israeli's and the neocons want a hot war.

Its easy to see this gradually ratchet up step by step into an uncontrolled region wide conflict.

Ignim Brites , May 20, 2019 at 8:54 am

Not sure what to make of this article but the Anglo-American press is not providing much context for the recent ratcheting up of confrontation with Iran.

NotTimothyGeithner , May 20, 2019 at 10:11 am

The MSM is mostly stenographers and right leaning pundits. If no one tells them, they wouldn't know.

Also, the DC elites were pretty irked by Obama's Iran deal. They deferred to Obama and the Europeans who demanded the deal, but I think they live in a world where DC's enemies are the enemies of the American people who overwhelmingly supported the Iran deal. DC hasn't come to grips with this.

JBird4049 , May 20, 2019 at 12:20 pm

but I think they live in a world where DC's enemies are the enemies of the American people who overwhelmingly supported the Iran deal. DC hasn't come to grips with this.

Yes, because all pain, real blood and death, misery and horror that they cause in fighting what they assume putatively are "the American people's enemies" are never suffered by them, but only everyone else including the American people; all the financial benefits do go to them so it is all gain and no cost.

Ian Perkins , May 20, 2019 at 9:11 am

Will Lavrov and Wang Yi's guarantees prevent an Israeli nuclear attack on Iranian facilities, followed by US pledges to fully support Israel's right to self defence?

jackson , May 20, 2019 at 10:01 am

There are two kinds of weapons in the world offensive and defensive. The latter are cheaper, a fighter plane compared to a bomber. If a country does not (or cannot afford to) have offensive intent, it makes sense to focus on defense. It is what Iran has done. Moreover, its missile centered defense has a modern deadly twist -- the missiles are precision-guided. As an Iranian general remarked when questioned about the carrier task force: some years ago it would've been a threat he opined; now it's a target. Iran also has a large standing army of 350,000 plus a 120,000 strong Revolutionary Guard and Soviet style air defenses. In 2016 Russia started installation of the S-300 system. It has all kinds of variants, the most advanced, the S-300 PMU-3 has a range similar to the S-400 if equipped with 40N6E missiles, which are used also in the S-400. Their range is 400 km, so the Iranian batteries are virtually S-400s. The wily Putin has kept trump satisfied with the S-300 moniker without short-changing his and China's strategic ally. The latter continuing to buy Iranian oil.

Iran has friends in Europe also. Angela Merkel in particular has pointed out that Iran has complied fully with the nuclear provisions of the UN Security Council backed Joint Comprehensive Plan of Action i.e. the Iran nuclear deal. She is mustering the major European powers. Already alienated with Trump treating them as adversaries rather than friends, they find Trump's bullying tiresome. President Macron, his poll ratings hitting the lowest, is hardly likely to engage in Trump's venture. In Britain, Theresa May is barely able to hold on to her job. In the latest thrust by senior members of her party, she has been asked to name the day she steps down.

So there we have it. Nobody wants war with Iran. Even Israel, so far without a post-election government does not want to be rained upon by missiles leaky as its Iron Dome was against homemade Palestinian rockets. Topping all of this neither Trump nor Secretary of State Pompeo want war. Trump is as usual trying to bully -- now called maximum pressure -- Iran into submission. It won't. The wild card is National Security Adviser John Bolton. He wants war. A Gulf of Tonkin type false flag incident, or an Iranian misstep, or some accident can still set it off. In Iran itself, moderates like current President Hassan Rouhani are being weakened by Trump's shenanigans. The hard liners might well want to bleed America as happened in Iraq and Afghanistan.

Thomas P , May 20, 2019 at 12:13 pm

I don't trust those air defenses too much, where have they ever performed well? The scary part is where Iran assumes that USA can through repeated air strikes wipe out their missiles. They will from the start find themselves in a "use them or lose them" scenario and may launch everything as response to even a limited US strike, since they can't know if it is limited or the beginning of a full scale attack, and I doubt Iran is willing to go down without doing everything it can to hurt their enemies. (Possibly excluding Israel which is crazy enough to go nuclear in response).

[May 20, 2019] On The Cusp Of War Why Iran Won't Fold

May 20, 2019 | www.nakedcapitalism.com

Yves here. Glenn F sent along this story about recent events in the US-Iran conflict, many of which don't appear to have been reported in the English language press. Interestingly, the article takes the position that it is the Saudis that have been doing their best and largely succeeding in suppressing these reports.

Going into the weekend, it looked as if the US was trying to turn down the Iran threat meter a notch. Both Iran and the Saudis said they didn't want war but were prepared for one. Then a mystery rocket landed in the Green Zone in Baghdad. Oopsie. From the Wall Street Journal:

No major destruction was inflicted by the rocket, which landed near a museum displaying old planes and caused some damage to a building used by security guards, according to an official in the interior ministry.

The interior ministry official, who declined to be identified, said the rocket had landed around a kilometer from the U.S. Embassy inside Baghdad's Green Zone, where many other diplomatic missions and Iraqi government offices are located.

No group claimed responsibility. But security officials said security forces had found and seized a mobile rocket launcher in an area of Baghdad where Shiite militias, including some with close links to Iran, have a presence.

But also note this:

The Trump administration last week ordered a partial evacuation of its diplomatic missions in Baghdad and Erbil citing increased threats posed by Iran and its allies in Iraq. The Iraqi government has varying degrees of control over an array of armed groups, some of which are closely affiliated with Iran.

... ... ...

[May 18, 2019] If Washington were able to control everything, including "Big Prize" Iran, it would be able to dominate all Asian economies, especially China. Trump even said were that to happen, "decisions on the GNP of China will be made in Washington."

May 18, 2019 | www.moonofalabama.org

Peter AU 1 , May 18, 2019 2:15:40 AM | link

Without the oil, Trump has lost. Pepe Escobar is starting to get the picture

https://www.strategic-culture.org/news/2019/05/17/the-dead-dont-die-they-march-to-war/

"If President Trump had ever read Mackinder -- and there's no evidence he did -- one might assume that he's aiming at a new anti-Eurasia integration pivot centered on the Persian Gulf. And energy would be at the heart of the pivot.

If Washington were able to control everything, including "Big Prize" Iran, it would be able to dominate all Asian economies, especially China. Trump even said were that to happen, "decisions on the GNP of China will be made in Washington."...

...Arguably the key (invisible) takeaway of the meetings this week between Foreign Ministers Sergey Lavrov and Wang Yi, and then between Lavrov and Pompeo, is that Moscow made it quite clear that Iran will be protected by Russia in the event of an American showdown. Pompeo's body language showed how rattled he was.

What rattled Pomp: "Any use of nuclear weapons against Russia or its allies, be it small-scale, medium-scale or any other scale, will be treated as a nuclear attack on our country. The response will be instant and with all the relevant consequences,"

Trump may not have read Mackinder but Kissinger sure would have.

[May 16, 2019] Global fossil fuel subsidies hit record $5.2 trillion

May 16, 2019 | peakoilbarrel.com

Hightrekker

says: 05/15/2019 at 9:51 am

Global fossil fuel subsidies hit record $5.2 trillion –
https://desdemonadespair.net/2019/05/global-fossil-fuel-subsidies-hit-record-5-2-trillion.html

The Free Market in action.

[May 16, 2019] The IEA's Dire Warning For Energy Markets: prepare for higher, possible much higher oil prices

Notable quotes:
"... Upstream spending rose by a modest 4 percent, which only partially repairs the savage cuts following the 2014 bust, which saw upstream spending fall by about 30 percent. However, the IEA said that 2019 could be a bit of a turning point, with a "new wave of conventional projects" in the works. ..."
"... Despite the increase in spending on new oil projects, "today's investment trends are misaligned with where the world appears to be heading," the IEA said. "Notably, approvals of new conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth." ..."
"... Geographically, investment [in solar and wind] is concentrated in rich countries. Roughly 90 percent of total energy investment – both for fossil fuels and for renewable energy – was funneled into high- and upper-middle income regions. Rich countries alone accounted for 40 percent of total energy investment, despite only making up 15 percent of the global population. ..."
May 15, 2019 | www.zerohedge.com

Authored by Nick Cunningham of Oilprice.com,

Global energy investment "stabilised" at just over $1.8 trillion in 2018, ending three years of declines.

Higher spending on oil, natural gas and coal was offset by declines in fossil fuel-based electricity generation and even a dip in renewable energy spending. China was the largest market for energy investment, even as the U.S. closed the gap.

After the 2014-2016 oil market bust, spending on oil and gas plunged, and only started to tick up last year. But the oil industry is not returning to its old spending ways. New investment is increasingly concentrated in short-cycle projects, namely, U.S. shale, "partly reflecting investor preferences for better managing capital at risk amid uncertainties over the future direction of the energy system," the IEA wrote in its report.

Upstream spending rose by a modest 4 percent, which only partially repairs the savage cuts following the 2014 bust, which saw upstream spending fall by about 30 percent. However, the IEA said that 2019 could be a bit of a turning point, with a "new wave of conventional projects" in the works.

Despite the increase in spending on new oil projects, "today's investment trends are misaligned with where the world appears to be heading," the IEA said. "Notably, approvals of new conventional oil and gas projects fall short of what would be needed to meet continued robust demand growth."

... ... ...

The good news is that costs continue to fall. Solar PV has seen costs decline by 75 percent since 2010, and onshore wind and battery storage costs are down by 20 percent and 50 percent, respectively. As such, a dollar spent on renewables buys a lot more energy than it used to, so flat investment is not entirely negative. And in a growing number of places, solar and wind are the cheapest option for power generation – increasingly cheaper than existing coal plants .

Geographically, investment [in solar and wind] is concentrated in rich countries. Roughly 90 percent of total energy investment – both for fossil fuels and for renewable energy – was funneled into high- and upper-middle income regions. Rich countries alone accounted for 40 percent of total energy investment, despite only making up 15 percent of the global population.

... ... ...


peakpeat , 1 hour ago link

Nothing, no EV's, solar, wind, coal or uranium is going to help. No tight shale, Arctic or North Slope oil is going to lift this sinking ship. There are no more new oil reserves to find and all the old fields are in a state of desperate high-tech extraction. We took all the easy stuff, Bakken and Permian are the last ditch effort. That's why all the playas have negative cash flow. That's why we are fecked.

Evil Liberals , 1 hour ago link

https://srsroccoreport.com/the-end-of-the-oil-giants-and-what-it-means/

Saudi Ghawar Field, admitted in decline

peakpeat , 59 minutes ago link

That was the last great elephant field. The largest resource ever discovered on the planet. Finally in decline. So goes Saudi Arabia. So goes OPEC. So goes mankind.

Evil Liberals , 2 hours ago link

Should have been building Nuclear Plants the last 20 years - that is Clean Energy.

Just don't build near the shore along the Ring of Fire or along Earthquake Fault Lines.

RDouglas , 2 hours ago link

Cheap crude was a 100 year party, the hangover has already begun. Fracked oil, tar sands, were a rescue remedy, funded by low interest rates, (debt). The massive population boom of the last century and a half directly coordinates with increasing oil production. If you aren't preparing yourself and your children for energy-down/population-down, you are insuring that YOUR decedents won't be among the 100 million or so people scratching out a living in North America in 100 years.

peakpeat , 57 minutes ago link

Before 1850 and the discovery of oil and coal, there were 1 billion people on the planet. Now there are 7 billion. 6 billion will die as the oil economy and oil infrastructure grinds to a halt. Better make you peace. Your plans are too late.

SilverSphinx , 5 hours ago link

Nuclear power generation is still King.

The use of nuclear power has resumed since the Fukushima disaster.

All the countries that swore off of nuclear power have returned to it and restarted their nuclear power plants and resumed construction on new plants.

Solarstone , 3 hours ago link

Let's hope you are right. It's the only viable option to oil

-- ALIEN -- , 3 hours ago link

2 words; Peak Uranium

"...Declining uranium production will make it impossible to obtain a significant increase in electrical power from nuclear plants in the coming decades."

Thorium Reactors...

"...A similar fate was encountered by another idea that involved "breeding" a nuclear fuel from a naturally existing element -- thorium. The concept involved transforming the 232 isotope of thorium into the fissile 233 isotope of uranium, which then could be used as fuel for a nuclear reactor (or for nuclear warheads). The idea was discussed at length during the heydays of the nuclear industry, andit is still discussed today; but so far, nothing has come out of it and the nuclear industry is still based on mineral uranium as fuel..."

https://www.resilience.org/stories/2017-01-18/peak-uranium-the-uncertain-future-of-nuclear-energy/

iSage , 2 hours ago link

There is a 1,000 years worth of uranium out west. I don't like the waste, used rods are hot for a long long time.

Cloud9.5 , 8 hours ago link

Mexican oil production is in decline. North Sea production is in decline. Alaskan production is in decline. There is a trend here.

peakpeat , 1 hour ago link

OPEC was the necessary cartel that helped to stabilize production and prices.

Now all of it including Saudi Arabia, Iran and the rest, all 14 nations past and present, is defunct. Output has been in decline since Nov. 2016. See IEA data or peakoilbarrel for a summary

JimmyJones , 8 hours ago link

US has enough coal to power us for over 200 years.

afronaut , 8 hours ago link

Not to mention natural gas

Ignorance is bliss , 8 hours ago link

Cool..How do I fill my BMW up with coal? How about that just in time delivery. Anyone ever try to power a semi-truck with coal? Eactly what do we pave the road ways with? Coal?

BangDingOw , 7 hours ago link

Yeesh. All wrong. Most important, slick Willie gave us our china trade problems, and then demand for raw commods in china soared. In response, his geniuses gave us the cfma, which was passed to let the JPMs of the world naked short commodities till the cows came home. However, china demand growth was so far in excess of supply growth that several of the WS firms saw the writing on the wall and went long. Thus the pols amazement when finding out v=bear stearns was actually long oil. Finally prices got high enough that supply growth started overtaking demand growth. We have been going down , on average, since. china demand late 90s oil wa 3Mbpd, currently 13Mbpd

[May 13, 2019] Buffet bet is a bet that the ol price will go up

May 13, 2019 | peakoilbarrel.com

shallow sand x Ignored says: 05/08/2019 at 2:05 pm

Buffett put it very simply. If oil prices go up OXY can make a lot of money.

$100 oil they will make a lot, especially on their CO2 projects in the Permian, and in Oman, where they own a decent chunk of flowing BOPD.

It's a bet on oil going up, plus getting 8% interest for loaning them $10 billion. They go with preferred stock for the favorable dividend tax treatment.

It is only a bad deal if oil stays here or below long term. Assuming a 10-15 year cycle, by 2025-2030 oil will surely rocket up.

Boomer II x Ignored says: 05/09/2019 at 12:41 am
It's a good deal for Berkshire, but not a good deal for Occidental.

"The 8 percent yield on the preferreds is way above Oxy's pre-bidding dividend yield of 4.7 percent and equivalent to a pre-tax cost of debt of about 10 percent, roughly triple the company's bond yield. That's before counting the warrants, equivalent to 9 percent dilution on the pro forma share count, plus the redemption premium.

This wasn't a bet on Oxy, the Permian shale basin or even oil prices; Buffett could have just bought stock in the open market for that. This was about extracting as much as possible from a company that really needed the promise of a big slug of cash."

https://www.bloomberg.com/opinion/articles/2019-05-08/chevron-vs-occidental-for-anadarko-what-will-winning-mean

Boomer II x Ignored says: 05/09/2019 at 12:45 am
If Occidental gets the deal, its bond rating will go down.

https://seekingalpha.com/news/3460887-moodys-says-likely-downgrade-occidental-wins-anadarko

Boomer II x Ignored says: 05/08/2019 at 2:17 am
According to Buffett, he is betting on oil prices and the Permian.

Also, Berkshire might have bought Anadarko directly, if asked. Which seems odd.

"Asked why Berkshire wouldn't just buy Anadarko itself, Buffett said, 'That might have happened if Anadarko came to us, but we wouldn't jump into some other deal that we heard about from somebody else coming to us seeking financing.'

Later in the interview, longtime investing partner and vice chairman Charlie Munger responded to the question as well, saying, 'Nobody asked us to.'"

https://www.cnbc.com/2019/05/06/buffett-says-occidental-petroleum-investment-is-a-bet-on-oil-prices-over-the-long-term.html

[May 13, 2019] Will Trump pressure on Iran result in the spike of oil prices?

May 13, 2019 | peakoilbarrel.com

Ron Patterson x Ignored says: 05/07/2019 at 4:51 pm

currently they are forecasting about a 750 kb/d increase annually from Dec 2018 to Dec 2020.

Yes, but they are predicting the lions share of that gain in 2019. That is they are predicting a US increase in production of 1,200 kb/d in 2019 and a gain of 350 kb/d in 2020. (Dec. to Dec. in each case.)

Note: This is C+C, not Total Liquids.

Obviously, they are expecting a slowdown in the oil patch in 2020. That slowdown just may come about a year earlier than expected.

Dennis Coyne x Ignored says: 05/08/2019 at 7:42 am
Ron,

I agree, 2019 is too high, but I still think the overall change from Dec 2018 to Dec 2020 will be about right (2019 increase will be less than STEO, but 2020 increase will be greater).

It is doubtful their forecast will be precisely correct, nor will anyone's, but the overall increase from Dec 2018 to Dec 2020 seems pretty reasonable. I agree that the expected increase in 2019 will be less than the 1.2 Mb/d the EIA currently forecasts, about 700 kb/d this year and 850 kb/d next year seems more reasonable if Brent oil prices gradually rise to $85/b (2018$) over the May 2019 to Dec 2020 period as I expect (with lots of volatility along the way). Basically I expect the centered average 5 week Brent spot price may reach $85/b some time before Dec 31, 2020.

Ron Patterson x Ignored says: 05/08/2019 at 8:19 am
Dennis, the EIA clearly sees the slowdown in the shale oil patch coming. They think it will hit next year, 2020. The EIA has a history of being overly optimistic. Yet yet, in this case, you think they are being pessimistic. You see shale production increasing in 2020 over 2019. That just seems very strange to me.

However, I will just have to leave it at that. We will both just have to wait and see.

Dennis Coyne x Ignored says: 05/09/2019 at 7:27 am
Ron,

I expect oil prices will be higher towards the end of 2019, profits for tight oil producers will be higher, there will be a higher well completion rates (higher capital spending budgets) in 2020 as a result and the rate of increase in tight oil output will increase a bit (I am assuming 700 kb/d in 2019 and 800 kb/d in 2020, this is essentially no change in the rate of increase). In the end we don't know as we don't know future oil prices and how they will affect investment decisions. The main point is that in the end the output in Dec 2020 may be pretty close to the EIA estimate. That estimate is neither pessimistic or optimistic, it is realistic. The path that output will take from March 2019 to Dec 2020 is impossible to predict, a straight line guess is as good as any.

Ron Patterson x Ignored says: 05/09/2019 at 7:49 am
I understand Dennis, hope springs eternal in the shale oil patch, for some folks anyway.

I agree that oil prices are about to spike. World oil production is currently falling like a rock. Brent prices are in backwardation, meaning traders also expect prices to rise. However, I do not believe, as you do, that this will automatically cause a dramatic increase in oil production. The effect will be feeble at best. Well, in my opinion anyway.

Dennis Coyne x Ignored says: 05/09/2019 at 1:27 pm
Hi Ron,

I also do not expect a dramatic increase, I actually expect the recent rate of annual increase of 1.6 Mb/d to slow to about half of the previous rate (0.8 Mb/d) and continue to slow over time to near zero by 2024.

We'll see.

[May 13, 2019] Does EIA preducttion of dramatic rise in shale oil output means that they predict dramatic rise on oil prices: shale is not profitable for most companies below $70-$80 a barrel.

May 13, 2019 | peakoilbarrel.com

Ovi x Ignored says: 05/07/2019 at 5:04 pm

Attached are the changing monthly STEO projections for February, March and April for the lower 48 production. Today's projection, April, has added 230 kb/d day by year end 2019 to the March projection and close to 300 kb/d in 2020. The April projection also shows an increase of 960 kb/d from Dec 18 to Dec 19. For Dec 19 to Dec 20, the increase is only 420 kb/d, less than half of the 18 to 19 increase. Any speculation/ideas for the lower increase for 19 to 20. The G of M drops by 70 kb/d from Dec 19 to Dec 20.

Ron Patterson x Ignored says: 05/07/2019 at 5:37 pm
Thanks, Ovi.

You notice that the April 19 STEO has the lowest production numbers for Jan. Feb. and April 2019 but the highest numbers as they move into the second half of 2019 and all of 2020.

I don't know what to make of this except that I find it rather amusing.

GuyM x Ignored says: 05/07/2019 at 6:27 pm
I found it insulting to my intelligence (not an exceptionally difficult task), but now that you mention it, I can imagine some Lewis Carroll feel to it.
ProPoly x Ignored says: 05/07/2019 at 4:48 pm
How are they adding 100k+ net non-Gulf when their own drilling productivity reports have the Permian at less than half that growth? With Eagle Ford and Bakken not growing. Doesn't add up even before taking out legacy decline elsewhere.

[May 13, 2019] Price range $55-65 WTI would still be ok for small traditional producers, but shale producers need $75-80

Notable quotes:
"... A word about the LTO metric of the month, free cash flow. Cash flow ain't "free" if one is still in debt. IMO, 1Q19 was awful for the US shale oil industry. It used cash flow for buy backs, to meet dividend demands by pissed off investors, to pay absurd prices for undeveloped acreage in the Permian, for reserve replacement (75% of ALL wells now drilled in America's shale basins simply offset last year's annualized decline) and still eked out a little growth. Nothing to very little went of nothing went to voluntary deleveraging. At less than $75-80, it can't be done. ..."
May 13, 2019 | peakoilbarrel.com

shallow sand x Ignored says: 05/11/2019 at 11:32 pm

Dennis. Things were going good until 11/18, when the price started to crater. Thankfully we are back up. However, our price for December through March averaged $48 and change, which is making money, but not much.

Expenses have stayed relatively stable. Labor goes up a little each year. Electricity has actually dropped a few percent. Chemicals have stayed the same since we received a 10% cut in 2016. Steel is up some, so rods and tubing are a little higher.

$55-65 WTI would still be ok. Liked $70s last fall, before the Donald got involved with Iran waivers and tweets.

My comment was poking at the Donald, et al, who think that since $25 was a great price in 1990 it should still be ok today.

Clearly, although $55-65 is good for us, maybe not good enough for others. In particular, the service companies who continue to lay bleeding to death on the side of the road.

We still have no plans to drill. Have five workovers planned for summer to fight the decline.

Mike Shellman x Ignored says: 05/12/2019 at 10:37 am
Dennis, you are kind; thank you. My belief is that if one can't make money at $50/2.50, and cope with 30% price swings for months at a time, one should be in the lawn mowing business instead. The US shale oil industry could therefore keep most of America looking like Augusta National.

A word about the LTO metric of the month, free cash flow. Cash flow ain't "free" if one is still in debt. IMO, 1Q19 was awful for the US shale oil industry. It used cash flow for buy backs, to meet dividend demands by pissed off investors, to pay absurd prices for undeveloped acreage in the Permian, for reserve replacement (75% of ALL wells now drilled in America's shale basins simply offset last year's annualized decline) and still eked out a little growth. Nothing to very little went of nothing went to voluntary deleveraging. At less than $75-80, it can't be done.

Hughes has a new report out clearly showing Mother Nature is having Her say in the shale oil phenomena. Nobody messes with Mother Nature.

Dennis Coyne x Ignored says: 05/12/2019 at 11:27 am
Thanks Mike,

Agree higher oil prices are needed for tight oil producers to reduce their debt. If long term oil prices remain $50/b, they are toast.

I read a blurb on the new Hughes paper, but I am a bit of a cheapskate and was not willing to put down $250 for the report so I have not read it.

From your perspective, do you think oil prices are likely to remain $50/b long term? (lets call it the 52 week average oil price). It seems to me there will not be adequate supply on the World oil market at $50/b, perhaps $65 or $70/b (in 2019 US$) would do it.

You know infinitely more than me about the oil business and you have been in it for a while (40+ years as an owner I believe), so your take would be of interest to me and I imagine everyone who reads this blog.

Synapsid x Ignored says: 05/12/2019 at 11:46 am
Mike,

Robert Rapier has an article–new, I think–about Free Cash Flow at OilPrice. Nicely detailed.

[May 13, 2019] Samuelson points out how flawed economists are. And that includes projection of oil production

May 13, 2019 | peakoilbarrel.com

Boomer II x Ignored says: 05/12/2019 at 9:09 pm

As many of you, I don't expect business as usual to continue. We get projections based on past trends, but with oil being finite and the globe already showing the effects of climate change, I think we are in for a tumultuous future.

Samuelson points out how flawed economists are.

https://www.washingtonpost.com/opinions/economists-often-dont-know-what-theyre-talking-about/2019/05/12/f91517d4-7338-11e9-9eb4-0828f5389013_story.html

[May 12, 2019] Could it be all about the oil caucus99percent

May 12, 2019 | caucus99percent.com

Could it be all about the oil?


span y gjohnsit on Fri, 05/10/2019 - 11:48am The Trump Administration made it perfectly clear: no more waivers on Iranian sanctions. No exceptions .

"We're going to zero. We're going to zero across the board," US Secretary of State Mike Pompeo told reporters after the White House made the announcement in a statement. "There are no (oil) waivers that extend beyond that period, full stop," he said, adding that there would be no grace period for those economies to comply.

Got it? No exceptions. This is about values and principles. This is about Iranian terrorism (or some such nonsense).

Wait a sec. What happened to 'no more waivers, no exceptions'?
Well, ya see, a funny thing happened along the way.


Iraq will soon finalize a large-scale, long-term deal for the development of oil fields in the South with Exxon and PetroChina. The 30-year contract will involve investments of US$53 billion and potential returns for Baghdad of as much as US$400 billion over its lifetime, Prime Minister Adel Abdul Mahdi told media this week.

I know what you are thinking, but I am here to tell you conclusively that the timing is all a coincidence. Billions of dollars in Exxon profits have no effect on our foreign policy decisions.

Iraqi Prime Minister Adel Abdul Mahdi said on Tuesday there was no link between an initial oil agreement his government was about to sign with Exxon Mobil and its receipt of waivers from the United States exempting it from sanctions on Iran.

There you go. A deeply corrupt Iraqi politician denies that the two events are related. What more proof do you want?

span y magiamma on Fri, 05/10/2019 - 11:53am
Great news

More oil extraction. But just not our oil extraction. Oh well, oil well...

span y Not Henry Kissinger on Fri, 05/10/2019 - 12:29pm
To paraphrase John McCain...

The US is an oil company masquerading as a country .

span y Alligator Ed on Fri, 05/10/2019 - 2:38pm
Do I detect a bit of cynicism here?

@Not Henry Kissinger

I know what you are thinking, but I am here to tell you conclusively that the timing is all a coincidence. Billions of dollars in Exxon profits have no effect on our foreign policy decisions.

Of course it's a coincidence! Have you never heard about America's great humanitarian wars, a phrase which we owe to great patriot Susan Powers? And, do you not fail to realize that Barack Hussein O'Bama* was our greatest president since Franklin Pierce?

*You know also that BHO is a black Irishman (groan).

The US is an oil company masquerading as a country .

span y Anja Geitz on Fri, 05/10/2019 - 5:38pm
I'm a bit surprised

@Not Henry Kissinger

John McCain was that astutely satiric. In any case, I think I'll borrow it if you don't mind.

The US is an oil company masquerading as a country .

span y snoopydawg on Fri, 05/10/2019 - 4:51pm
Nothing like folding a winning hand early

Iraq should have said that they will buy Iranian oil for as long as they want in exchange for signing the agreement. But I'm guess that the guy who inked the deal is one of our puppets?.

span y dervish on Fri, 05/10/2019 - 6:00pm
I wonder if Iraq could launder

@snoopydawg Iranian oil as their own, ad infinitum?

Iraq should have said that they will buy Iranian oil for as long as they want in exchange for signing the agreement. But I'm guess that the guy who inked the deal is one of our puppets?.

[May 11, 2019] The Shale Boom Is About To Go Bust by Nick Cunningham

Notable quotes:
"... Arthur Berman has been predicting exactly this for year. They'll spend more and more pushing production up, but eventually you get diminishing returns – the drop off in production, when it happens, will be quite dramatic as the sweet spots run dry. ..."
"... Just to add – one possible catastrophic outcome for the planet of a shale bust is poorly capped wells. Properly capping a fracked well is very difficult (you need to plug each individual geological layer, its not just a matter of putting a concrete plug on the well head). If they are not properly plugged, they will leak gas for decades and its extremely difficult and expensive to properly plug. In theory of course they are supposed to be properly capped by the operators, but if they go out of business . ..."
"... So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate. ..."
"... Natural gas is methane, so badly capped fracked gas wells would be really bad for climate change. ..."
"... Fracking the modern equivalent to hydrological gold mining. But money [tm] was made some confuse this with value ..."
"... This is old news. Drillers over estimated the production length for fracked wells to help their Ponzi Scheme. For a natural gas well the production tanks in most cases in 3 years. To keep production up more wells had to be drilled. Eventually places to drill become hard to locate.I witnessed this in northern PA. It was boom for about 5 years then came the bust. Although there is still some fracking it is only minor compared to what it was. A few made money but the cost to the environment was passed on to the taxpayers. ..."
"... Venezuelan oil is very important to frackers because almost all refineries in the US were built to handle the mid-density oils from Texas and Alaska. Tight oil (fracked) is super light (it can't be fracked otherwise), and so it needs to be mixed in with heavy grade oil to make it refinable. This is where heavy Venezuelan crude and Canadian tar sand oil comes in – they are essential to create a crude that can be refined in existing plants. ..."
"... So the relationship between the US tight oil industry and Venezuela/Canada is quite complex – they all need each other to some extent otherwise they are stuck with oil that can't be refined. This is of course one reason why Washington absolutely hates not having firm control of Venezuelan production. But its also why they can't afford to shut it down entirely (which would happen if there was a military invasion or civil war). ..."
"... The fracked oil and gas often have low market value. The gas wells may produce relatively low quantities of high value natural gas liquids. The oil often is so light that it produces low quantities of high value distillates like diesel fuel. The fracked crude may contain high amounts of impurities that make it difficult and expensive to refine. ..."
"... Venezuela oil can be delivered directly to the Gulf Coast refineries in tankers that require no permitting or construction. Canadian oil requires pipelines (e.g. Keystone XL) which are held up in permitting. So it is ironic that the Keystone pipeline permitting quagmire is likely to be a proximate cause for the Trump administration dabbling in Venezuela as many Gulf Coast refineries are geared for Alberta/Venezuela oil. ..."
"... It was the fruits of Bush admin energy policy. Doubt it was primarily geopolitical, more like tail wagging the dog. Though the distinction is increasingly blurry now. ..."
"... Destroying limited fresh water is insane. This is a perfect example of the horrible consequences of capitalism. Profit corrupts the political system as the state merges to serve the oligarchs. ..."
May 10, 2019 | www.nakedcapitalism.com

By Nick Cunningham, a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics based in Pittsburgh, PA. Originally published at OilPrice

The shale industry faces an uncertain future as drillers try to outrun the treadmill of precipitous well declines.

For years, companies have deployed an array of drilling techniques to extract more oil and gas out of their wells, steadily intensifying each stage of the operation. Longer laterals, more water, more frac sand, closer spacing of wells – pushing each of these to their limits, for the most part, led to more production. Higher output allowed the industry to outpace the infamous decline rates from shale wells.

In fact, since 2012, average lateral lengths have increased 44 percent to over 7,000 feet and the volume of water used in drilling has surged more than 250 percent, according to a new report for the Post Carbon Institute. Taken together, longer laterals and more prodigious use of water and sand means that a well drilled in 2018 can reach 2.6 times as much reservoir rock as a well drilled in 2012, the report says.

That sounds impressive, but the industry may simply be frontloading production. The suite of drilling techniques "have lowered costs and allowed the resource to be extracted with fewer wells, but have not significantly increased the ultimate recoverable resource," J. David Hughes, an earth scientist, and author of the Post Carbon report, warned. Technological improvements "don't change the fundamental characteristics of shale production, they only speed up the boom-to-bust life cycle," he said.

For a while, there was enough acreage to allow for a blistering growth rate, but the boom days eventually have to come to an end. There are already some signs of strain in the shale patch, where intensification of drilling techniques has begun to see diminishing returns. Putting wells too close together can lead to less reservoir pressure, reducing overall production. The industry is only now reckoning with this so-called "parent-child" well interference problem.

Also, more water and more sand and longer laterals all have their limits . Last year, major shale gas driller EQT drilled a lateral that exceeded 18,000 feet. The company boasted that it would continue to ratchet up the length to as long as 20,000 feet. But EQT quickly found out that it had problems when it exceeded 15,000 feet. "The decision to drill some of the longest horizontal wells ever in shale rocks turned into a costly misstep costing hundreds of millions of dollars," the Wall Street Journal reported earlier this year.

Ultimately, precipitous decline rates mean that huge volumes of capital are needed just to keep output from declining. In 2018, the industry spent $70 billion on drilling 9,975 wells, according to Hughes, with $54 billion going specifically to oil. "Of the $54 billion spent on tight oil plays in 2018, 70% served to offset field declines and 30% to increase production," Hughes wrote.

As the shale play matures, the field gets crowded, the sweet spots are all drilled, and some of these operational problems begin to mushroom. "Declining well productivity in some plays, despite application of better technology, are a prelude to what will eventually happen in all plays: production will fall as costs rise," Hughes said. "Assuming shale production can grow forever based on ever-improving technology is a mistake -- geology will ultimately dictate the costs and quantity of resources that can be recovered."

There are already examples of this scenario unfolding. The Eagle Ford and Bakken, for instance, are both "mature plays," Hughes argues, in which the best acreage has been picked over. Better technology and an intensification of drilling techniques have arrested decline, and even led to a renewed increase in production. But ultimate recovery won't be any higher; drilling techniques merely allow "the play to be drained with fewer wells," Hughes said. And in the case of the Eagle Ford, "there appears to be significant deterioration in longer-term well productivity through overcrowding of wells in sweet spots, resulting in well interference and/or drilling in more marginal areas that are outside of sweet-spots within counties."

In other words, a more aggressive drilling approach just frontloads production, and leads to exhaustion sooner. "Technology improvements appear to have hit the law of diminishing returns in terms of increasing production -- they cannot reverse the realities of over-crowded wells and geology," Hughes said.

The story is not all that different in the Permian, save for the much higher levels of spending and drilling. Post Carbon estimates that it the Permian requires 2,121 new wells each year just to keep production flat, and in 2018 the industry drilled 4,133 wells, leading to a big jump in output. At such frenzied levels of drilling, the Permian could continue to see production growth in the years ahead, but the steady increase in water and frac sand "have reached their limits." As a result, "declining well productivity as sweet-spots are exhausted will require higher drilling rates and expenditures in the future to maintain growth and offset field decline," Hughes warned.

Ignacio , May 10, 2019 at 5:07 am

I think everybody knew that the shale boom would prove to be transient –I consider several years as transient– and it will end with holes in earth and wallets. The Bakken and Eagle Ford have become mature plays in a relatively short period and we will learn, sooner than later, how the decline of these plays unfolds. Somehow the shale business model depends on ever increasing production and production would have increased even faster if it wasn`t for resource constraints (takeaway capacity, crew availability ). According to the EIA the Permian is now filled with DUCKS, sorry, DUCs (drilled but uncompleted wells) waiting for production. Those are waiting for new pipelines and, "hopefully", oil price increases engineered by the US by production suppression in Venezuela and Iran.

Count me amongst those that would like oil price increases, although for different reasons.

Yves Smith Post author , May 10, 2019 at 6:00 pm

The forecasts I saw earlier were that production would peak in the early 2020s, decline gradually for the rest of the decade, and then fall off sharply.

PlutoniumKun , May 10, 2019 at 5:09 am

Arthur Berman has been predicting exactly this for year. They'll spend more and more pushing production up, but eventually you get diminishing returns – the drop off in production, when it happens, will be quite dramatic as the sweet spots run dry.

The equally big question though is the influence of oil and gas prices. A crisis in the shale fields might be precipitated not by a drop in production, but further downward pressure on prices. Or likewise, a spike in oil prices could give a boost to yet more capital investment in those fields. For now, I suspect the producers are far more worried about low prices than running out of oil/gas. A lot of them are betting on substantial rises in the future in order to make their balance sheets look better. So that's a lot of rich people who would welcome a Middle East war.

PlutoniumKun , May 10, 2019 at 5:24 am

Just to add – one possible catastrophic outcome for the planet of a shale bust is poorly capped wells. Properly capping a fracked well is very difficult (you need to plug each individual geological layer, its not just a matter of putting a concrete plug on the well head). If they are not properly plugged, they will leak gas for decades and its extremely difficult and expensive to properly plug. In theory of course they are supposed to be properly capped by the operators, but if they go out of business .

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

Roger Boyd , May 10, 2019 at 11:57 am

Natural gas is methane, so badly capped fracked gas wells would be really bad for climate change.

rd , May 10, 2019 at 1:32 pm

States and provinces have started program to cap old O&G wells abandoned decades ago that are leaking methane. All they need to do for new fracking wells is put in tight regulations and enforce them. But that requires political will.

Oh , May 10, 2019 at 1:14 pm

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

And methane if the gas does not contain CO2.

Svante Arrhenius , May 10, 2019 at 1:50 pm

When we'd fish, mountain bike or varmint hunt in Western PA., many decades ago (ie: ancient conventional oil & gas wells only) it was clear; not only was none of the leaking gas ever flared, but folks were tapping the rusted christmas trees. By the 80's, as we were building the rail trails, it was far worse than our memories. Fracked ethane/ wet gas wells are off-limits, unless you have FLIR drones.

https://m.phys.org/news/2015-05-emissions-natural-gas-wells-downwind.html
https://m.youtube.com/watch?v=HanXGD2NJxk

skippy , May 10, 2019 at 5:29 am

Fracking the modern equivalent to hydrological gold mining. But money [tm] was made some confuse this with value

Svante , May 10, 2019 at 12:02 pm

Well, gold does a: not explode (oh, yes it DOES!) b: does not cause 20%-89% more global warming than CO2 (oh yes it DO!) c: "water is precious, sometimes more precious than gold?" Walter Houston, as Howard: The Treasure of the Sierra Madre, who called Bogart, "no, not ME baby!"

jackiebass , May 10, 2019 at 5:57 am

This is old news. Drillers over estimated the production length for fracked wells to help their Ponzi Scheme. For a natural gas well the production tanks in most cases in 3 years. To keep production up more wells had to be drilled. Eventually places to drill become hard to locate.I witnessed this in northern PA. It was boom for about 5 years then came the bust. Although there is still some fracking it is only minor compared to what it was. A few made money but the cost to the environment was passed on to the taxpayers.

The Rev Kev , May 10, 2019 at 6:11 am

There may be another factor at work here. Granted that the shale boom was always going to be a short term play, maybe the move on Venezuela is all about having oil to replace US production as it taps out – slowly at first, then all at once. Trump & Co could always buy Venezuelan oil at a market price but I think that the idea is to seize it to control more of the international oil market by being able to control international prices and you can't do that if Venezuela is an independent country. I just wonder how much damage is going to be done in America in terms of the environment and more importantly water supplies by all the chemicals pumped into the ground. It is going to be a toxic legacy that will be there for generations to come.

PlutoniumKun , May 10, 2019 at 6:30 am

Venezuelan oil is very important to frackers because almost all refineries in the US were built to handle the mid-density oils from Texas and Alaska. Tight oil (fracked) is super light (it can't be fracked otherwise), and so it needs to be mixed in with heavy grade oil to make it refinable. This is where heavy Venezuelan crude and Canadian tar sand oil comes in – they are essential to create a crude that can be refined in existing plants.

So the relationship between the US tight oil industry and Venezuela/Canada is quite complex – they all need each other to some extent otherwise they are stuck with oil that can't be refined. This is of course one reason why Washington absolutely hates not having firm control of Venezuelan production. But its also why they can't afford to shut it down entirely (which would happen if there was a military invasion or civil war).

So the calculations are complex, and they are being made by idiots, so there is no telling what they are planning.

Ken , May 10, 2019 at 11:49 am

There are several facets to this. The light oil from fracking and elsewhere is needed as a dilutent for the very heavy Venezuelan crude to enable it to be pumped on and off tank ships and through pipelines. Dilutents are also needed for the bitumen from the Alberta tar sands. The reason for the Keystone pipeline system is to pump diluted bitumen (dilbit) from Alberta to the Texas refineries is that are equipped to process this very heavy material similar to the very heavy Mexican and Venezuelan crudes. (Crude oils around the world vary greatly in composition. Refineries are equipped to process only certain types of crude.)

The fracked oil and gas often have low market value. The gas wells may produce relatively low quantities of high value natural gas liquids. The oil often is so light that it produces low quantities of high value distillates like diesel fuel. The fracked crude may contain high amounts of impurities that make it difficult and expensive to refine.

https://www.digitalrefining.com/article/1000979,Overcoming_the_challenges_of_tight_shale_oil_refining.html#.XNWZrqR7ncs

The rapid decline of output of the fracked wells is not new news. Oilprice.com has a 2017 article on the same point. https://oilprice.com/Energy/Crude-Oil/Shale-Growth-Hides-Underlying-Problems.html

Olga , May 10, 2019 at 12:58 pm

Well, and then there is this:
https://www.worldoil.com/news/2019/4/11/permians-flaring-rises-by-85-as-oil-boom-continues
"The Permian Basin has produced so much natural gas that by the end of 2018 producers were burning off more than enough of the fuel to meet residential demand across Texas. The phenomenon has likely only intensified since then."

The problem seems to be a lack of pipelines to get the gas to customers. Not that I disagree with "the boom is over" too much, but Permian is a large area and has a way to go. But it will fizzle out in time.

rd , May 10, 2019 at 1:23 pm

Venezuela oil can be delivered directly to the Gulf Coast refineries in tankers that require no permitting or construction. Canadian oil requires pipelines (e.g. Keystone XL) which are held up in permitting. So it is ironic that the Keystone pipeline permitting quagmire is likely to be a proximate cause for the Trump administration dabbling in Venezuela as many Gulf Coast refineries are geared for Alberta/Venezuela oil.

RWood , May 10, 2019 at 9:49 am

Using data from field experiments and computer modeling of ground faults, researchers have discovered that the practice of subsurface fluid injection used in 'fracking' and wastewater disposal for oil and gas exploration could cause significant, rapidly spreading earthquake activity beyond the fluid diffusion zone. The results account for the observation that the frequency of man-made earthquakes in some regions of the country surpass natural earthquake hotspots.

According to the U.S. Geological Survey, the largest earthquake induced by fluid injection and documented in the scientific literature was a magnitude 5.8 earthquake in September 2016 in central Oklahoma. Four other earthquakes greater than 5.0 have occurred in Oklahoma as a result of fluid injection, and earthquakes of magnitude between 4.5 and 5.0 have been induced by fluid injection in Arkansas, Colorado, Kansas and Texas.

Fracking: Earthquakes are triggered well beyond fluid injection zones
https://www.sciencedaily.com/releases/2019/05/190502143353.htm

QuarterBack , May 10, 2019 at 9:51 am

I seriously doubt that the shale boom was ever about being profitable. I have long held that the shale industry has been artificially elevated as a hedge against risks induced by the long term Middle East geopolitical and military strategy. It was always expected to loose money and have negative secondary effects, but it had been decided to be necessary. Shale has survived because of a gentleman's agreement by the power players to cover the costs of the shale strategy; that along with investment media hype and stealthy subsidies to try to induce outside suckers to reduce some of the burden of those behind the hedge.

rd , May 10, 2019 at 1:31 pm

The shale industry was largely small to mid-sized firms that figured out the technology to go into low-priced leases because the oil was inaccessible. Junk bonds have fueled their growth and operations. As long as they get the cash flow from wells to pay their junk bond interest payment, it can keep going. Once they can't, expect a Wile E. Coyote splat in the junk bonds market and the fracking oil patch. The majors have moved in so they might be a bit of a flywheel for the system, but ultimately if prices are too low to support drilling, then the majors will pull the plug as fracking is not a long-term investment play over multiple price cycles in the same way an offshore oil field is. Instead, it can be turned on and off at will with new drilling always required to sustain production, so you just stop drilling when prices are too low.

Amfortas the hippie , May 10, 2019 at 10:22 am

a couple of on the ground, as it were, observations:

i live in frac sand country("Brady Brown"). there was a crisis of late to my north, as 2 of the 3 sand plants in and around Voca and Brady Texas suddenly closed(after a few years of financial shenanigans/scandal, and them being sold to multnational outfits, etc). West Texas found a way to use the more local, white sand for their purposes, and stopped buying the Brady Brown.

Immediate local Depression, folks moving if they could sell their houses( for sale signs there are routinely a decade old ), local pols/big wigs freaking out.
one of them just reopened and all of a sudden, there's gobs of sand trucks heading South(Eagle Ford). first time in prolly 8 years.

Both of my brothers in law work in the patch in the Permian roughnecking. When i probe them for anecdotes being careful not to ask leading questions they expect more or less permanent employment. one, against my advice(which he asked for), just bought a house in Sanderson which has no reason for being save oil.

My cousin, in East Texas, just hired on with a pipeline company headed to either the Permian or the Bakken(he's waiting to find out).

So there's a spurt of renewed activity in South Texas, and the expectation(both in the workforce, and in the boardroom) that West Texas(and Dakota) will continue for some time.

and i just remembered my last trip through Pasadena, Texas a year ago
the great big refinery on 225(I think it's Exxon) was putting in a gigantic separater(or whatever you call those things) easily as tall as the smaller skyscrapers in downtown houston(maybe 20+ stories) using 2 of the biggest, tallest cranes i've ever seen or heard of.
Dad says it's for heavy, sour crude(a la Venezuela and Iran). so there's at least year old expectations there, as well ie: exxon thinks it's gonna need much more refining capacity for that oil.
it can't last forever, of course.

California Bob , May 10, 2019 at 11:08 am

" a gigantic separater(or whatever you call those things) " Crackers. https://en.wikipedia.org/wiki/Cracking_(chemistry)

Amfortas the hippie , May 10, 2019 at 11:12 am

That's the one!
Thanks.

Svante , May 10, 2019 at 12:09 pm

But, I thought, "Caucasoid American" or, "ofay, peckerwood-type individual" was more politically correct, nowadays? https://stateimpact.npr.org/pennsylvania/2017/11/16/public-health-researcher-issues-dire-warning-over-proposed-ethane-cracker-plant/

https://www.fractracker.org/2017/02/formula-disaster-ethane-cracker/

Harrold , May 10, 2019 at 12:54 pm

Midland & Odessa are definitely planning on the continuation of oil production and are forecasting no busts. This hurts my head to understand as there are still people alive there who have been thru multiple booms and busts over the past 70 years.

Harry , May 10, 2019 at 6:12 pm

I would imagine its for the same reason there is no global warming or climate change in Florida. Its bad for business. Those guys know the truth. But theres no advantage in talking about it.

Synapsid , May 10, 2019 at 3:24 pm

Amfortas,

I don't know about that particular cracker but Exxon is building up refining capability for the light tight oil and condensate coming out of the Permian. That work is in the Houston area.

The idea may be Why ship it out when we can make money out of the products? I dunno.

Svante , May 10, 2019 at 10:57 am

In summary: If you're leaving an exceedingly expensive, but eminently walkable major city, with acceptable (off peak) mass tramsit, prodigeous gas/coal/nuclear/hydroelectric sources immediately available to move to a "normal" southern Appalachian city? Don't neglect to research PV, geothermal, "passive" convection, and plug-in hybrid or EV transportation options? When we were awaiting news from LA/MS friends in 2005, I'd been wondering about what my actually retiring atop the Marcellus would be like. We'd all figured Katrina's tour of Mars, Ursa, Mensa, Bullwinkle & Ram Powell platforms would (given Halliburton ruling the country) touch off a slick water fracking pyramid scheme that would have the Acela megalopolis simply killing us for our fracked gas, as they'd simply stolen our coal, gas, oil and nuclear energy? Silly, substance abusing, deplorables!

jonst , May 10, 2019 at 12:34 pm

If Las Vegas represented the sentiment here I would be betting you guys are wrong.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

RBHoughton , May 10, 2019 at 10:48 pm

The evidence for production-suppression is opposition to the new Russia to Germany pipeline and US sanctions on Iran and Venezuela. Poland is America's stalking horse in Europe but is not getting much support from its neighbors.

Its my suspicion that vast sums of speculative money have gone into fracking in USA and UK because there was nothing better to do with the great increase in the money supply. That seems to be what's keeping the industry afloat for the time being.

Plutonium Kun's advice about plugging wells points to the frightful environmental effects that are coming to those countries that have allowed fracking. It will be the people that suffer.

Ptb , May 10, 2019 at 11:27 pm

It was the fruits of Bush admin energy policy. Doubt it was primarily geopolitical, more like tail wagging the dog. Though the distinction is increasingly blurry now.

Every presidency seems to have a couple of these programs. Mixed range of soundness as policy

Market innovation (Enron), corn ethanol, developing H2 fuel cells (with the H2 coming from natgas at the time), subsidies (and loan guarantees!) for electric cars, even bigger ones for luxury electric cars, natgas import facilities, natgas export facilities, favor pipe to Canada and block the rail, favor rail to Canada and block the pipe, govt indemnifying the nuke industry from lawsuit damages arising from accidents, allowing utilities to "bail in" customers in case of losses from nuke projects, exempting any and all fracking waste products from clean water regs, actually subsidizing solar and wind, actually retiring coal, also actually sanctioning or invading no less than big 5 oil producing countries
Whew! Policy!

Bob Bancroft , May 10, 2019 at 11:55 pm

Destroying limited fresh water is insane. This is a perfect example of the horrible consequences of capitalism. Profit corrupts the political system as the state merges to serve the oligarchs.

[May 11, 2019] The Shale Boom Is About To Go Bust naked capitalism

May 11, 2019 | www.nakedcapitalism.com

https://eus.rubiconproject.com/usync.html

https://c.deployads.com/sync?f=html&s=2343&u=https%3A%2F%2Fwww.nakedcapitalism.com%2F2019%2F05%2Fthe-shale-boom-is-about-to-go-bust.html

https://acdn.adnxs.com/ib/static/usersync/v3/async_usersync.html <img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" /> The Shale Boom Is About To Go Bust Posted on May 10, 2019 by Yves Smith By Nick Cunningham, a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics based in Pittsburgh, PA. Originally published at OilPrice

The shale industry faces an uncertain future as drillers try to outrun the treadmill of precipitous well declines.

For years, companies have deployed an array of drilling techniques to extract more oil and gas out of their wells, steadily intensifying each stage of the operation. Longer laterals, more water, more frac sand, closer spacing of wells – pushing each of these to their limits, for the most part, led to more production. Higher output allowed the industry to outpace the infamous decline rates from shale wells.

In fact, since 2012, average lateral lengths have increased 44 percent to over 7,000 feet and the volume of water used in drilling has surged more than 250 percent, according to a new report for the Post Carbon Institute. Taken together, longer laterals and more prodigious use of water and sand means that a well drilled in 2018 can reach 2.6 times as much reservoir rock as a well drilled in 2012, the report says.

That sounds impressive, but the industry may simply be frontloading production. The suite of drilling techniques "have lowered costs and allowed the resource to be extracted with fewer wells, but have not significantly increased the ultimate recoverable resource," J. David Hughes, an earth scientist, and author of the Post Carbon report, warned. Technological improvements "don't change the fundamental characteristics of shale production, they only speed up the boom-to-bust life cycle," he said.

For a while, there was enough acreage to allow for a blistering growth rate, but the boom days eventually have to come to an end. There are already some signs of strain in the shale patch, where intensification of drilling techniques has begun to see diminishing returns. Putting wells too close together can lead to less reservoir pressure, reducing overall production. The industry is only now reckoning with this so-called "parent-child" well interference problem.

Also, more water and more sand and longer laterals all have their limits . Last year, major shale gas driller EQT drilled a lateral that exceeded 18,000 feet. The company boasted that it would continue to ratchet up the length to as long as 20,000 feet. But EQT quickly found out that it had problems when it exceeded 15,000 feet. "The decision to drill some of the longest horizontal wells ever in shale rocks turned into a costly misstep costing hundreds of millions of dollars," the Wall Street Journal reported earlier this year.

Ultimately, precipitous decline rates mean that huge volumes of capital are needed just to keep output from declining. In 2018, the industry spent $70 billion on drilling 9,975 wells, according to Hughes, with $54 billion going specifically to oil. "Of the $54 billion spent on tight oil plays in 2018, 70% served to offset field declines and 30% to increase production," Hughes wrote.

As the shale play matures, the field gets crowded, the sweet spots are all drilled, and some of these operational problems begin to mushroom. "Declining well productivity in some plays, despite application of better technology, are a prelude to what will eventually happen in all plays: production will fall as costs rise," Hughes said. "Assuming shale production can grow forever based on ever-improving technology is a mistake -- geology will ultimately dictate the costs and quantity of resources that can be recovered."

There are already examples of this scenario unfolding. The Eagle Ford and Bakken, for instance, are both "mature plays," Hughes argues, in which the best acreage has been picked over. Better technology and an intensification of drilling techniques have arrested decline, and even led to a renewed increase in production. But ultimate recovery won't be any higher; drilling techniques merely allow "the play to be drained with fewer wells," Hughes said. And in the case of the Eagle Ford, "there appears to be significant deterioration in longer-term well productivity through overcrowding of wells in sweet spots, resulting in well interference and/or drilling in more marginal areas that are outside of sweet-spots within counties."

In other words, a more aggressive drilling approach just frontloads production, and leads to exhaustion sooner. "Technology improvements appear to have hit the law of diminishing returns in terms of increasing production -- they cannot reverse the realities of over-crowded wells and geology," Hughes said.

The story is not all that different in the Permian, save for the much higher levels of spending and drilling. Post Carbon estimates that it the Permian requires 2,121 new wells each year just to keep production flat, and in 2018 the industry drilled 4,133 wells, leading to a big jump in output. At such frenzied levels of drilling, the Permian could continue to see production growth in the years ahead, but the steady increase in water and frac sand "have reached their limits." As a result, "declining well productivity as sweet-spots are exhausted will require higher drilling rates and expenditures in the future to maintain growth and offset field decline," Hughes warned.

Ignacio , May 10, 2019 at 5:07 am

I think everybody knew that the shale boom would prove to be transient –I consider several years as transient– and it will end with holes in earth and wallets. The Bakken and Eagle Ford have become mature plays in a relatively short period and we will learn, sooner than later, how the decline of these plays unfolds. Somehow the shale business model depends on ever increasing production and production would have increased even faster if it wasn`t for resource constraints (takeaway capacity, crew availability ). According to the EIA the Permian is now filled with DUCKS, sorry, DUCs (drilled but uncompleted wells) waiting for production. Those are waiting for new pipelines and, "hopefully", oil price increases engineered by the US by production suppression in Venezuela and Iran.

Count me amongst those that would like oil price increases, although for different reasons.

Yves Smith Post author , May 10, 2019 at 6:00 pm

The forecasts I saw earlier were that production would peak in the early 2020s, decline gradually for the rest of the decade, and then fall off sharply.

PlutoniumKun , May 10, 2019 at 5:09 am

Arthur Berman has been predicting exactly this for year. They'll spend more and more pushing production up, but eventually you get diminishing returns – the drop off in production, when it happens, will be quite dramatic as the sweet spots run dry.

The equally big question though is the influence of oil and gas prices. A crisis in the shale fields might be precipitated not by a drop in production, but further downward pressure on prices. Or likewise, a spike in oil prices could give a boost to yet more capital investment in those fields. For now, I suspect the producers are far more worried about low prices than running out of oil/gas. A lot of them are betting on substantial rises in the future in order to make their balance sheets look better. So that's a lot of rich people who would welcome a Middle East war.

PlutoniumKun , May 10, 2019 at 5:24 am

Just to add – one possible catastrophic outcome for the planet of a shale bust is poorly capped wells. Properly capping a fracked well is very difficult (you need to plug each individual geological layer, its not just a matter of putting a concrete plug on the well head). If they are not properly plugged, they will leak gas for decades and its extremely difficult and expensive to properly plug. In theory of course they are supposed to be properly capped by the operators, but if they go out of business .

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

Roger Boyd , May 10, 2019 at 11:57 am

Natural gas is methane, so badly capped fracked gas wells would be really bad for climate change.

rd , May 10, 2019 at 1:32 pm

States and provinces have started program to cap old O&G wells abandoned decades ago that are leaking methane. All they need to do for new fracking wells is put in tight regulations and enforce them. But that requires political will.

Oh , May 10, 2019 at 1:14 pm

So even if gas and oil fracking stopped today, they will be a major source of CO2 emissions for decades to come, one that will cost many billions to mitigate.

And methane if the gas does not contain CO2.

Svante Arrhenius , May 10, 2019 at 1:50 pm

When we'd fish, mountain bike or varmint hunt in Western PA., many decades ago (ie: ancient conventional oil & gas wells only) it was clear; not only was none of the leaking gas ever flared, but folks were tapping the rusted christmas trees. By the 80's, as we were building the rail trails, it was far worse than our memories. Fracked ethane/ wet gas wells are off-limits, unless you have FLIR drones.

https://m.phys.org/news/2015-05-emissions-natural-gas-wells-downwind.html
https://m.youtube.com/watch?v=HanXGD2NJxk

skippy , May 10, 2019 at 5:29 am

Fracking the modern equivalent to hydrological gold mining

But money [tm] was made some confuse this with value

Svante , May 10, 2019 at 12:02 pm

Well, gold does a: not explode (oh, yes it DOES!) b: does not cause 20%-89% more global warming than CO2 (oh yes it DO!) c: "water is precious, sometimes more precious than gold?" Walter Houston, as Howard: The Treasure of the Sierra Madre, who called Bogart, "no, not ME baby!"

jackiebass , May 10, 2019 at 5:57 am

This is old news. Drillers over estimated the production length for fracked wells to help their Ponzi Scheme. For a natural gas well the production tanks in most cases in 3 years. To keep production up more wells had to be drilled. Eventually places to drill become hard to locate.I witnessed this in northern PA. It was boom for about 5 years then came the bust. Although there is still some fracking it is only minor compared to what it was. A few made money but the cost to the environment was passed on to the taxpayers.

The Rev Kev , May 10, 2019 at 6:11 am

There may be another factor at work here. Granted that the shale boom was always going to be a short term play, maybe the move on Venezuela is all about having oil to replace US production as it taps out – slowly at first, then all at once. Trump & Co could always buy Venezuelan oil at a market price but I think that the idea is to seize it to control more of the international oil market by being able to control international prices and you can't do that if Venezuela is an independent country. I just wonder how much damage is going to be done in America in terms of the environment and more importantly water supplies by all the chemicals pumped into the ground. It is going to be a toxic legacy that will be there for generations to come.

PlutoniumKun , May 10, 2019 at 6:30 am

Venezuelan oil is very important to frackers because almost all refineries in the US were built to handle the mid-density oils from Texas and Alaska. Tight oil (fracked) is super light (it can't be fracked otherwise), and so it needs to be mixed in with heavy grade oil to make it refinable. This is where heavy Venezuelan crude and Canadian tar sand oil comes in – they are essential to create a crude that can be refined in existing plants.

So the relationship between the US tight oil industry and Venezuela/Canada is quite complex – they all need each other to some extent otherwise they are stuck with oil that can't be refined. This is of course one reason why Washington absolutely hates not having firm control of Venezuelan production. But its also why they can't afford to shut it down entirely (which would happen if there was a military invasion or civil war).

So the calculations are complex, and they are being made by idiots, so there is no telling what they are planning.

Ken , May 10, 2019 at 11:49 am

There are several facets to this. The light oil from fracking and elsewhere is needed as a dilutent for the very heavy Venezuelan crude to enable it to be pumped on and off tank ships and through pipelines. Dilutents are also needed for the bitumen from the Alberta tar sands. The reason for the Keystone pipeline system is to pump diluted bitumen (dilbit) from Alberta to the Texas refineries is that are equipped to process this very heavy material similar to the very heavy Mexican and Venezuelan crudes. (Crude oils around the world vary greatly in composition. Refineries are equipped to process only certain types of crude.)

The fracked oil and gas often have low market value. The gas wells may produce relatively low quantities of high value natural gas liquids. The oil often is so light that it produces low quantities of high value distillates like diesel fuel. The fracked crude may contain high amounts of impurities that make it difficult and expensive to refine.
https://www.digitalrefining.com/article/1000979,Overcoming_the_challenges_of_tight_shale_oil_refining.html#.XNWZrqR7ncs

The rapid decline of output of the fracked wells is not new news. Oilprice.com has a 2017 article on the same point. https://oilprice.com/Energy/Crude-Oil/Shale-Growth-Hides-Underlying-Problems.html

Olga , May 10, 2019 at 12:58 pm

Well, and then there is this:
https://www.worldoil.com/news/2019/4/11/permians-flaring-rises-by-85-as-oil-boom-continues
"The Permian Basin has produced so much natural gas that by the end of 2018 producers were burning off more than enough of the fuel to meet residential demand across Texas. The phenomenon has likely only intensified since then."
The problem seems to be a lack of pipelines to get the gas to customers.
Not that I disagree with "the boom is over" too much, but Permian is a large area and has a way to go. But it will fizzle out in time.

rd , May 10, 2019 at 1:23 pm

Venezuela oil can be delivered directly to the Gulf Coast refineries in tankers that require no permitting or construction. Canadian oil requires pipelines (e.g. Keystone XL) which are held up in permitting. So it is ironic that the Keystone pipeline permitting quagmire is likely to be a proximate cause for the Trump administration dabbling in Venezuela as many Gulf Coast refineries are geared for Alberta/Venezuela oil.

RWood , May 10, 2019 at 9:49 am

Using data from field experiments and computer modeling of ground faults, researchers have discovered that the practice of subsurface fluid injection used in 'fracking' and wastewater disposal for oil and gas exploration could cause significant, rapidly spreading earthquake activity beyond the fluid diffusion zone. The results account for the observation that the frequency of man-made earthquakes in some regions of the country surpass natural earthquake hotspots.

According to the U.S. Geological Survey, the largest earthquake induced by fluid injection and documented in the scientific literature was a magnitude 5.8 earthquake in September 2016 in central Oklahoma. Four other earthquakes greater than 5.0 have occurred in Oklahoma as a result of fluid injection, and earthquakes of magnitude between 4.5 and 5.0 have been induced by fluid injection in Arkansas, Colorado, Kansas and Texas.

Fracking: Earthquakes are triggered well beyond fluid injection zones
https://www.sciencedaily.com/releases/2019/05/190502143353.htm

QuarterBack , May 10, 2019 at 9:51 am

I seriously doubt that the shale boom was ever about being profitable. I have long held that the shale industry has been artificially elevated as a hedge against risks induced by the long term Middle East geopolitical and military strategy. It was always expected to loose money and have negative secondary effects, but it had been decided to be necessary. Shale has survived because of a gentleman's agreement by the power players to cover the costs of the shale strategy; that along with investment media hype and stealthy subsidies to try to induce outside suckers to reduce some of the burden of those behind the hedge.

rd , May 10, 2019 at 1:31 pm

The shale industry was largely small to mid-sized firms that figured out the technology to go into low-priced leases because the oil was inaccessible. Junk bonds have fueled their growth and operations. As long as they get the cash flow from wells to pay their junk bond interest payment, it can keep going. Once they can't, expect a Wile E. Coyote splat in the junk bonds market and the fracking oil patch. The majors have moved in so they might be a bit of a flywheel for the system, but ultimately if prices are too low to support drilling, then the majors will pull the plug as fracking is not a long-term investment play over multiple price cycles in the same way an offshore oil field is. Instead, it can be turned on and off at will with new drilling always required to sustain production, so you just stop drilling when prices are too low.

Amfortas the hippie , May 10, 2019 at 10:22 am

a couple of on the ground, as it were, observations:
i live in frac sand country("Brady Brown"). there was a crisis of late to my north, as 2 of the 3 sand plants in and around Voca and Brady Texas suddenly closed(after a few years of financial shenanigans/scandal, and them being sold to multnational outfits, etc). West Texas found a way to use the more local, white sand for their purposes, and stopped buying the Brady Brown.
Immediate local Depression, folks moving if they could sell their houses(for sale signs there are routinely a decade old), local pols/big wigs freaking out.
one of them just reopened and all of a sudden, there's gobs of sand trucks heading South(Eagle Ford). first time in prolly 8 years.

Both of my brothers in law work in the patch in the Permian roughnecking.
when i probe them for anecdotes being careful not to ask leading questions they expect more or less permanent employment. one, against my advice(which he asked for), just bought a house in Sanderson which has no reason for being save oil.
My cousin, in East Texas, just hired on with a pipeline company headed to either the Permian or the Bakken(he's waiting to find out).
so there's a spurt of renewed activity in South Texas, and the expectation(both in the workforce, and in the boardroom) that West Texas(and Dakota) will continue for some time.

and i just remembered my last trip through Pasadena, Texas a year ago
the great big refinery on 225(I think it's Exxon) was putting in a gigantic separater(or whatever you call those things) easily as tall as the smaller skyscrapers in downtown houston(maybe 20+ stories) using 2 of the biggest, tallest cranes i've ever seen or heard of.
Dad says it's for heavy, sour crude(a la Venezuela and Iran). so there's at least year old expectations there, as well ie: exxon thinks it's gonna need much more refining capacity for that oil.
it can't last forever, of course.

California Bob , May 10, 2019 at 11:08 am

" a gigantic separater(or whatever you call those things) "

Crackers.

https://en.wikipedia.org/wiki/Cracking_(chemistry)

Amfortas the hippie , May 10, 2019 at 11:12 am

That's the one!
Thanks.

Svante , May 10, 2019 at 12:09 pm

But, I thought, "Caucasoid American" or, "ofay, peckerwood-type individual" was more politically correct, nowadays? https://stateimpact.npr.org/pennsylvania/2017/11/16/public-health-researcher-issues-dire-warning-over-proposed-ethane-cracker-plant/

https://www.fractracker.org/2017/02/formula-disaster-ethane-cracker/

Harrold , May 10, 2019 at 12:54 pm

Midland & Odessa are definitely planning on the continuation of oil production and are forecasting no busts.

This hurts my head to understand as there are still people alive there who have been thru multiple booms and busts over the past 70 years.

Harry , May 10, 2019 at 6:12 pm

I would imagine its for the same reason there is no global warming or climate change in Florida. Its bad for business. Those guys know the truth. But theres no advantage in talking about it.

Synapsid , May 10, 2019 at 3:24 pm

Amfortas,

I don't know about that particular cracker but Exxon is building up refining capability for the light tight oil and condensate coming out of the Permian. That work is in the Houston area.

The idea may be Why ship it out when we can make money out of the products? I dunno.

Svante , May 10, 2019 at 10:57 am

In summary: If you're leaving an exceedingly expensive, but eminently walkable major city, with acceptable (off peak) mass tramsit, prodigeous gas/coal/nuclear/hydroelectric sources immediately available to move to a "normal" southern Appalachian city? Don't neglect to research PV, geothermal, "passive" convection, and plug-in hybrid or EV transportation options? When we were awaiting news from LA/MS friends in 2005, I'd been wondering about what my actually retiring atop the Marcellus would be like. We'd all figured Katrina's tour of Mars, Ursa, Mensa, Bullwinkle & Ram Powell platforms would (given Halliburton ruling the country) touch off a slick water fracking pyramid scheme that would have the Acela megalopolis simply killing us for our fracked gas, as they'd simply stolen our coal, gas, oil and nuclear energy? Silly, substance abusing, deplorables!

jonst , May 10, 2019 at 12:34 pm

If Las Vegas represented the sentiment here I would be betting you guys are wrong.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

Obdurate Eye , May 10, 2019 at 9:14 pm

I'm surprised no one has mentioned in passing Chevron's walk-away from the Anadarko deal. CVX knows exactly what Anadarko's actual and potential wells are worth to them under a variety of pricing scenarios. They'd rather pocket the $1bn break-up fee than overpay for a bunch of marginal wells. Good pricing/ROI discipline = not succumbing to deal-fever: A tip of the chapeau to them.

RBHoughton , May 10, 2019 at 10:48 pm

The evidence for production-suppression is opposition to the new Russia to Germany pipeline and US sanctions on Iran and Venezuela. Poland is America's stalking horse in Europe but is not getting much support from its neighbors.

Its my suspicion that vast sums of speculative money have gone into fracking in USA and UK because there was nothing better to do with the great increase in the money supply. That seems to be what's keeping the industry afloat for the time being.

Plutonium Kun's advice about plugging wells points to the frightful environmental effects that are coming to those countries that have allowed fracking. It will be the people that suffer.

Ptb , May 10, 2019 at 11:27 pm

It was the fruits of Bush admin energy policy. Doubt it was primarily geopolitical, more like tail wagging the dog. Though the distinction is increasingly blurry now.

Every presidency seems to have a couple of these programs. Mixed range of soundness as policy

Market innovation (Enron), corn ethanol, developing H2 fuel cells (with the H2 coming from natgas at the time), subsidies (and loan guarantees!) for electric cars, even bigger ones for luxury electric cars, natgas import facilities, natgas export facilities, favor pipe to Canada and block the rail, favor rail to Canada and block the pipe, govt indemnifying the nuke industry from lawsuit damages arising from accidents, allowing utilities to "bail in" customers in case of losses from nuke projects, exempting any and all fracking waste products from clean water regs, actually subsidizing solar and wind, actually retiring coal, also actually sanctioning or invading no less than big 5 oil producing countries
Whew! Policy!

Bob Bancroft , May 10, 2019 at 11:55 pm

Destroying limited fresh water is insane. This is a perfect example of the horrible consequences of capitalism. Profit corrupts the political system as the state merges to serve the oligarchs.

[May 06, 2019] Think of bomb-bomb-bomb as OPEC by other means

Notable quotes:
"... ...The Saudi-led OPEC+ production cut strategy is still in place, but it is partly successful due to the negative repercussions of the sanctions on Iran and Venezuela. The high level of compliance with the agreement (128%) is based on the loss of these particular volumes. At the same time, Saudi Arabia, UAE and Russia, are sticking to their roles, cutting as needed. Optimism about Iraq is based on uncertain assumptions, while Libya's overall situation is highly volatile. ..."
May 06, 2019 | www.zerohedge.com

The removal of U.S. waivers for leading oil importers of Iranian oil and gas is putting the Tehran regime under severe pressure. While Trump's target of reducing Iranian production to zero is unrealistic, the impact of the sanctions is undeniable.

...The Saudi-led OPEC+ production cut strategy is still in place, but it is partly successful due to the negative repercussions of the sanctions on Iran and Venezuela. The high level of compliance with the agreement (128%) is based on the loss of these particular volumes. At the same time, Saudi Arabia, UAE and Russia, are sticking to their roles, cutting as needed. Optimism about Iraq is based on uncertain assumptions, while Libya's overall situation is highly volatile.

...In the coming weeks, as analysts focus on production figures, storage volumes and demand, OPEC will be focusing on defusing pressure to increase production, while at the same time the Saudi-led faction will likely confront the Tehran-Venezuela (and possibly Iraqi) axis. Iran has openly threatened to undermine OPEC's stability if no support can be gathered before the June meeting. In several statements to the press, Iran's oil Minister has warned that OPEC is in danger of collapse. Tehran threatens at present to take all necessary measures to block oil and gas flows from OPEC members that are supporting the U.S. sanctions regime. At the same time, Tehran has warned to take measures against countries trying to fill in the supply gap left by Iran. Zanganeh reiterated the latter during a meeting with OPEC secretary general Barkindo in Tehran. Barkindo reacted by saying that OPEC will do its utmost to depoliticize oil and gas policies of the organization. OPEC's SG statements however look very bleak in light of the growing heat in the conflict between Iran and Saudi Arabia.

scraping_by , 4 hours ago link

Much of the shambolic belligerence and pointless aggression of Not-A-Neocon Trump can be seen as cutting down world oil production in service of higher prices for SA's royals and, a very distant second, US shale producers. Venezuela isn't an existential threat to the US, not like Goldman Sachs, but embargoes on oil would keep the price up. Iran's not an existential threat, but oil embargoes... Syria's not an existential threat but putting the oil on the black market...

Think of bomb-bomb-bomb as OPEC by other means.

[May 05, 2019] A sharp spike in oil prices is another danger with which the administration now lands itself. Together, US sanctions against Venezuela and Iran will take roughly 2 million barrels of oil a day out of the market

Notable quotes:
"... First, the new turn in the administration's Iran policy appears to mark a decisive defeat for President Donald Trump in his long-running battle with his foreign policy minders. It is now very unlikely Trump will achieve any of his policy objectives, a number of which represent useful alternatives to the stunningly shambolic strategies advanced by Pompeo, National Security Advisor John Bolton, and other zealots in the administration. ..."
"... Second, this administration's foreign policy has steadily assumed an irrational character that may be unprecedented in U.S. history. This is perilous. The administration's near-paranoiac hostility toward Pyongyang and Moscow are cases in point. So is its evident indifference to alienating longstanding allies across the Atlantic and in Asia. As of this week, however, Pompeo's "down to zero" policy makes Iran the most immediate danger. ..."
"... The question is why this administration's foreign policies are so amateurish and discombobulated. Corollary question: Why is the president surrounded by policy advisers so thoroughly at odds with those of his objectives that are worthwhile? ..."
"... Trump may not have chosen his foreign policy team so much as its members have been imposed upon him. ..."
"... He was self-evidently behind the decision to move the U.S. embassy in Israel to Jerusalem and the announcement in March that Washington recognizes Israeli jurisdiction over the Golan Heights. ..."
"... It is unlikely anything is all done in connection with the embassy move and the Golan Heights decision. Both run diametrically counter to international law and both have significantly damaged U.S. credibility in the Middle East. Trump, in short, makes his own miscalculations, and they are as grave as any made by the Pompeo–Bolton axis. There are few wise heads in this administration. ..."
"... You guys fail to see that the notion that Trump and Co genuinely seek to "improve ties" with Russia is a key element of the larger "Russiagate" psyop, a truly laughable idea which is disproved not only by the longer term historical record, but also by the veritable mountain of evidence that has accrued since Trump came into office demonstrating that this administration has only EXACERBATED the empire's long running and profoundly anti-Russian foreign policy agenda. ..."
"... Irrational foreign policy? I wish the United States would just drop the charade and declare itself a global empire. What we see is the foreign policy of empire. Is this rational or isn't it? ..."
"... Current US foreign policy is aligned to impose maximum pressure on countries like Venezuela and Iran in order to pressure those governments and hopefully topple them with sanctions. The entire World is hungry for oil and the demand for oil is expanding at an exponential rate which in turn guides US foreign policy. ..."
The US Moves on Iran's Oil Market as an Expression of an Irrational Foreign Policy by Patrick Lawrence
April 29, 2019 | consortiumnews.com

65 Comments

Patrick Lawrence gauges the backfiring potential of Pompeo's withdrawal on Thursday of U.S. sanction waivers from eight major importers.

Secretary of State Mike Pompeo's announcement last week that no importer of Iranian oil will henceforth be exempt from U.S. sanctions is as risky as it is misguided. The withdrawal of waivers as of this Thursday effectively gives eight importers dependent on Iranian crude -- India, Japan, South Korea, China, Turkey, Taiwan, Italy, and Greece -- 10 days' notice to adjust their petroleum purchases.

This is now a full-court press: The intent is to cut off Iran's access to any oil market anywhere as part of the administration's "maximum pressure" campaign against Tehran. "We are going to zero," Pompeo said as he disclosed the new policy.

Nobody is going to zero. The administration's move will further damage the Iranian economy, certainly, but few outside the administration think it is possible to isolate Iran as comprehensively as Pompeo seems to expect.

Insights on Overreach

There are a couple of insights to be gleaned from this unusually aggressive case of policy overreach.

First, the new turn in the administration's Iran policy appears to mark a decisive defeat for President Donald Trump in his long-running battle with his foreign policy minders. It is now very unlikely Trump will achieve any of his policy objectives, a number of which represent useful alternatives to the stunningly shambolic strategies advanced by Pompeo, National Security Advisor John Bolton, and other zealots in the administration.

Weakened by relentless "Russia-gate" investigations, for instance, the president has little chance now of improving ties with Moscow or negotiating with adversaries such as Iran and North Korea, as he has long advocated.

In a Face the Nation interview Sunday, Iranian Foreign Minister Mohammad Javad Zarif said Tehran would be open to bilateral talks under the right conditions. It was the second time in a week that Zarif made this point. But those around Trump, not least Bolton and Pompeo, are sure to block any such prospect -- or sabotage talks if they do take place, as they did Trump's second summit with Kim Jong-un, North Korea's leader, in late February.

Second, this administration's foreign policy has steadily assumed an irrational character that may be unprecedented in U.S. history. This is perilous. The administration's near-paranoiac hostility toward Pyongyang and Moscow are cases in point. So is its evident indifference to alienating longstanding allies across the Atlantic and in Asia. As of this week, however, Pompeo's "down to zero" policy makes Iran the most immediate danger.

Persian Gulf Chokepoint

Iranian officials, including Zarif, now threaten to close the Strait of Hormuz, chokepoint of the Persian Gulf, if Iranian tankers are prevented from passing through it. This is an indirect warning that the Iranian military could confront the U.S. Fifth Fleet, which operates in the Gulf and adjacent waters.

A sharp spike in oil prices is another danger with which the administration now lands itself. Taken together, U.S. sanctions against Venezuela and Iran are intended to take roughly 2 million barrels of oil a day out of the market.

Saudi Arabia has pledged to make up the lost supply, but many analysts question its ability to sustain an increase in output given the advancing depletion of its long-productive Ghawar field. Spare capacity among producers is already wafer-thin. Do we need to risk another oil crisis, given the flagging global economy?

Trump's foreign policy minders also risk alienating allies -- South Korea, Japan, India, the Europeans -- whose cooperation the U.S. needs on numerous other policy questions. In the case of China, the administration puts progress on a nearly complete trade deal and Beijing's leverage with North Korea in jeopardy.

There are other cases demonstrating the Trump administration's apparently thorough indifference to collateral damage and the animosity of allies. Since the U.S. abandoned the Paris climate pact and the 2015 accord governing Iran's nuclear program, the Europeans have hardly contained their anger; they are openly furious now about the tightened sanctions against Iran. The South Koreans, frustrated with Washington's intransigent stance toward Pyongyang, now search for ways to engage the North despite many layers of UN and U.S–imposed sanctions.

The question is why this administration's foreign policies are so amateurish and discombobulated. Corollary question: Why is the president surrounded by policy advisers so thoroughly at odds with those of his objectives that are worthwhile?

Trump arrived in Washington an outsider: This is where answers to these questions begin. This limited the New York dealmaker to a shallow pool from which to build his administration. His never-ending Russia-gate problem further handicaps him. This administration is among the most opaque in recent history, so certainties as to its internal workings are hard to come by. But Trump may not have chosen his foreign policy team so much as its members have been imposed upon him.

However his advisers arrived in the administration, they are a toxic combination of neoconservatives, many drawn from the Heritage Foundation , and evangelical Christians . Bolton is emblematic of the former, Pompeo of the latter. This is the current complexion of American foreign policy.

Zealots and Crusaders

Both camps are populated with zealots and crusaders; both cultivate irrational world views rooted in extremist ideology and sentiment. Bolton's obsession is the restoration of unchallenged U.S. supremacy. Pompeo is said to view adversaries such as North Korea and Iran as George W. Bush did : The U.S. is in an "end times" war with Gog and Magog, biblical manifestations of the evil abroad in the world.

To be clear, there is more wrong than right in the president's foreign policy thinking. He was self-evidently behind the decision to move the U.S. embassy in Israel to Jerusalem and the announcement in March that Washington recognizes Israeli jurisdiction over the Golan Heights.

"This is very important strategically for victory, heights, because you're up high, very important," Trump said over the weekend. "Fifty-two years ago this started [when Israel captured Golan from Syria in the 1967 war] and I did it quickly. Done. It's all done."

It is unlikely anything is all done in connection with the embassy move and the Golan Heights decision. Both run diametrically counter to international law and both have significantly damaged U.S. credibility in the Middle East. Trump, in short, makes his own miscalculations, and they are as grave as any made by the Pompeo–Bolton axis. There are few wise heads in this administration.

At the same time, Trump's desire to negotiate with adversaries -- Russia, Iran, North Korea -- is entirely defensible. But the "down to zero" Iran policy to take effect this week can be read as a signal of the president's failure to counter the foreign policy Manicheans who surround him.

There may be skirmishes to come, but the battle is over. We must now watch as extremist ideologues accelerate America's already evident decline as a global power -- along with its increasing isolation.

Patrick Lawrence, a correspondent abroad for many years, chiefly for the International Herald Tribune , is a columnist, essayist, author, and lecturer. His most recent book is "Time No Longer: Americans After the American Century" (Yale). Follow him @thefloutist. His web site is www.patricklawrence.us. Support his work via www.patreon.com/thefloutist .


Brian James , May 2, 2019 at 12:23

Apr 30, 2019 A New Mega Cartel Is Emerging In Oil Markets

China and India -- two of the world's largest oil importers and the biggest demand growth centers globally -- are close to setting up an oil buyers' club to have a say in the pricing and sourcing of crude oil amid OPEC's cuts and U.S. sanctions on Iran and Venezuela, Indian outlet livemint reports, citing three officials with knowledge of the talks.

https://youtu.be/lgkGNyd6pR4

vinnieoh , May 3, 2019 at 14:33

Thanks for that link, I'm sure I'll follow this. I feel the same apprehension the narrator's inflection seemed to convey in closing "We'll have to see where this leads." That apprehension is that this will push the war-mongers to accelerate the timetable for an attack on Iran.

Stuart Davies , May 1, 2019 at 09:00

Sorry to see that Consortium News still maintains their commitment to the ludicrous premise that Trump is "pro Russian" at heart:

" the new turn in the administration's Iran policy appears to mark a decisive defeat for President Donald Trump in his long-running battle with his foreign policy minders .Weakened by relentless "Russia-gate" investigations, for instance, the president has little chance now of improving ties with Moscow or negotiating with adversaries such as Iran and North Korea, as he has long advocated."

Utter nonsense. You guys fail to see that the notion that Trump and Co genuinely seek to "improve ties" with Russia is a key element of the larger "Russiagate" psyop, a truly laughable idea which is disproved not only by the longer term historical record, but also by the veritable mountain of evidence that has accrued since Trump came into office demonstrating that this administration has only EXACERBATED the empire's long running and profoundly anti-Russian foreign policy agenda.

O Society , April 30, 2019 at 13:20

Irrational foreign policy? I wish the United States would just drop the charade and declare itself a global empire. What we see is the foreign policy of empire. Is this rational or isn't it?

https://opensociet.org/2019/03/21/the-american-emperor-has-no-clothes/

elmerfudzie , April 30, 2019 at 13:16

Asymmetric warfare with Iran has already begun. Internet based "worms" and economic sanctions have, so far, been successfully coordinated in concert with our rather reluctant Western Occident allies. These attacks have been more or less been kept at bay. The alternative, direct military intervention would prove to be a new "holocaust" and would target roughly seventy separate nuclear research sites and dozens of scattered air force bases. The weapons of choice would be DU-38 munitions and huge bombs. DU has a proven record against fortified concrete and armored structures. It has an infamous reputation for leaving permanent, radioactive "ground shine" wherever used. Lest we all (never) forget the absolutely horribly deformed children born in southern Iraq who suffered prenatal exposure to radiation poisoning! In war, it's always the most vulnerable and innocent to suffer the most for example; Yemeni civilians.

The militant factions of our Pentagon and Congress (found within both sides of the political aisle) will continue to pursue the long range plan I outlined some time ago in a CONSORTIUMNEWS commentary. To recap it, this tug-of-war is not so much about trading in the USD as it is about a global oil glut. I believe it was Bandar bin Sultan who commented that, and I'm paraphrasing him here; there's plenty of relatively easy oil everywhere, the idea to grasp is, what countries will be permitted to extract and sell it? Thus, the global and persistent NeoCon plan seems to be to cap or severely restrict, Libyan, Iranian and Iraqi oil reserves, meanwhile making backroom deals that permit a few SCO, (reluctantly) Russian, Saudi, African and US/Canadian reserves to flourish on the open market. Venezuelan oil will act as the back up resource should, a regional nuclear war in the middle east result in irreversible damage to "friendly" refineries and ready access to them. Again, ground shine due to a deployment of neutron A-weaponry (N-Bombs)..most likely from Israel. Ah!, sweet treachery in times of war eh? Need I remind our CONSORTIUMNEWS readership of Hitlers last minute betrayal of Stalin? The Israelis want a "piece of the oil action" too!

Us , April 30, 2019 at 10:59

So sorry to see the country ripped apart. Hatful , boasting reprobates behind the steering wheel

vinnieoh , April 30, 2019 at 10:05

Thank you Mr. Lawrence for, if nothing else, hypothesizing or postulating why the Trump administration foreign policy is as you say, so amateurish and discombobulated. But I do agree with Drew Hunkins below that for whatever reasons(*), Trump himself has always vilified and mocked Iran. He is nothing if not a scurrilous opportunist, and threatening Iran just fits his personality as a bully. Very few if any of the other kids on the playground have the guts or integrity to come to Iran's defense.

It lightened my spirit just a little bit when you said that the Trump administration "is one of the most opaque in recent history." Why, just yesterday I heard our glorious leader say that his administration is the most transparent ever in American history. I wish that I should live long enough to see the use of such superlatives disappear from our discourse.

I somehow missed Mr. Zarif's several statements concerning a willingness to engage in bilateral talks. That is almost flabbergasting. Which Iranians could possibly believe there is an honest negotiator now anywhere close to the levers of power in DC? But Zarif continues to hold to and operate in the terms of classic diplomacy: do not close any doors forever, and; do not relinquish the high ground of sensibleness and integrity to your opponent. But, surely there aren't ANY Iranians who believe that the US would make any concessions, de-escalate any of our threats, or place a muzzle on our two rabid dog allies.

(*) It is my firm belief that the overwhelming motivation for much of what Trump does goes back directly to the annual DC correspondents dinner where Obama publicly and rightfully humiliated and mocked that fat-assed moron. And well he should have. It didn't miss my notice that Trump once again skipped that event. He will never attend – it was the absolute lowest point of his public life (so far), everybody laughing at him and that horrible skinny n####r twisting the rhetorical knife relentlessly. I'm reminded of a short story of Harlan Ellison's called "Stardust." I'll leave it to the curious to follow that lead. Narcissism as a genetic "addiction."

vinnieoh , April 30, 2019 at 10:17

Right after the 2016 election I posted something to the effect that perhaps we should ask native Americans if they think it is unusual that an unprincipled real estate speculator is now the captain of the state.

Zhu , April 30, 2019 at 01:22

Thanks for confirming that Pompeo is a Dispensationalist, eager for the End of the World.

Roberto , April 30, 2019 at 08:01

The neocons, Bolton and Pompeo, are not going to put an end to the world, because the Greek Islands need nothing from the United States. They only need a little gasoline for their cars and motor scooters. However, the neocons are going to put an end to the petrodollar, because no one on earth can trust the "out of control government" of the United States, any longer.

CitizenOne , April 30, 2019 at 01:06

During the Iraq war there were many calls from conservatives to not stop at the border with Iran. They supported a plan to roll US tanks and other offensive forces until they reached Tehran and obliterated it defeating the rogue nation and securing Iranian oil fields.

The scenario proposed today to strangle resource rich nations by war hawks is similar to the post war imaginings posed by Patton to keep on going until the US armed forces reached Moscow. It is similar to the plans of MacArthur to lay down a nuclear radiation barrier along North Korea's northern border with China to create a lethal ionizing radioactive zone or no mans land to prevent China from sending Chinese troops across the border.

Each one of these proposed but never implemented war strategies in hind sight would have probably netted the US great gains at minimal risk.

On one hand, the current administrations strategy and tactics to wage economic war against US "enemies" which are all rich with oil reserves seems like the right aggressive maneuvers to make easy wins for the USA. On the other hand the World has changed since those times.

Current US foreign policy is aligned to impose maximum pressure on countries like Venezuela and Iran in order to pressure those governments and hopefully topple them with sanctions. The entire World is hungry for oil and the demand for oil is expanding at an exponential rate which in turn guides US foreign policy.

There is thousands of years of history of nations including the US to takeover the riches of nations and profit from the resources.

... ... ...

[May 01, 2019] India and Europe stopped buying iranian oil. 1 billion $ of iranian oil stays blocked in China, no one wants to touch it. Even Khamenei admitted that Europe left the JCPOA in practise.

Notable quotes:
"... The Empire is not weak, this is poor analysis. India and Europe stopped buying Iranian oil. 1 billion $ of Iranian oil stays blocked in China, no one wants to touch it. Even Khamenei admitted that Europe left the JCPOA in practice. ..."
"... Iran is in deep recession. Venezuela is in deep recession and is surrounded. ..."
"... Iraq? US troops are staying there. Syria? US troops are staying there long term. 1 third of the country containing the biggest oil fields is under US control. There is fuel shortage crisis due to sanctions. Europe is not stopping its sanctions either. ..."
May 01, 2019 | www.moonofalabama.org

Passer by , May 1, 2019 8:19:31 PM | link

"The Empire only appears to be strong. In reality it is weak, confused, clueless"

The Empire is not weak, this is poor analysis. India and Europe stopped buying Iranian oil. 1 billion $ of Iranian oil stays blocked in China, no one wants to touch it. Even Khamenei admitted that Europe left the JCPOA in practice.

Iran is in deep recession. Venezuela is in deep recession and is surrounded. Almost all of Latin America now has pro-US governments. CIA linked Bolsonaro took over in Brazil. Turkey is in deep recession and Erdogan lost the big cities.

India is moving closer to the US. Europe remains a vassal. Russian economic growth is weak. The US won the trade war against China as Andrei Martyanov himself admitted.

Iraq? US troops are staying there. Syria? US troops are staying there long term. 1 third of the country containing the biggest oil fields is under US control. There is fuel shortage crisis due to sanctions. Europe is not stopping its sanctions either.

There is no doubt that they will be weaker in the future, but they will fight hard to stop this and gain time.

[Apr 30, 2019] What Oil at $100 a Barrel Would Mean for the World Economy

Apr 30, 2019 | www.bloomberg.com

2. How can the world economy absorb oil at $100?

For a sustained hit to growth, economists say oil would need to hold above $100. It also depends on dollar strength or weakness, given crude is priced in greenbacks. Analysis by Oxford Economics found that Brent at $100 per barrel by the end of 2019 means the level of global gross domestic product would be 0.6 percent lower than currently projected by end-2020, with inflation on average 0.7 percentage points higher.

"We see increased risks of significantly higher oil prices," Oxford economists John Payne and Gabriel Sterne wrote in a note. "In the short-run, it is likely the supply impact will be offset by higher production elsewhere, but the market is tightening and all it would take is one more shock to supply and oil could reach $100."

3. How will Iran and Trump impact the market?

An upending of global oil trade around the Iran-Trump spat could continue to have a sizable impact on financial markets, as the affected supply is as much as 800,000 barrels a day. Uncertainties around availability have already whipsawed oil markets . And the political sensitivities of these developments have other markets bracing for volatility.

Trump has pledged to help, alongside Saudi Arabia and the U.A.E., those needing to shift orders from Iran to another supplier. But U.S. claims that its domestic supply can help offset the loss are a high bar to meet, given that the daily American output for similar crude is about a quarter of Iran's.

4. Who wins from higher oil prices?

Emerging economies dominate the list of oil-producing nations which is why they're affected more than developed ones. The increase in revenues will help to repair budgets and current account deficits, allowing governments to increase spending that will spur investment. Winners include Saudi Arabia, Russia, Norway, Nigeria and Ecuador according to analysis by Nomura.

5. Who loses?

Those emerging economies nursing current account and fiscal deficits run the risk of large capital outflows and weaker currencies, which in turn would spark inflation. That in turn will force governments and central banks to weigh up their options: hike interest rates even as growth slows or ride it out and risk capital flight. Nomura's losers list includes Turkey, Ukraine and India.

6. What does it mean for the world's biggest economy?

While U.S. oil producers try to take advantage of any sales boost from customers moving away from Iran, the broader U.S. economy won't necessarily see benefits with oil price tags as high as $100 a barrel.

It would be a squeeze on American consumers that are the backbone of still-steady economic growth . Prices at the gas pump already have risen more than 7 percent this month to $2.89 a gallon, which could weigh on retail sales that jumped in March by the most since 2017.

And if things go awry in global oil markets, there's risk that political blame shifts back to the U.S. for the sanctions, which could mean backlash via investment or other channels that threatens economic stability.

7. Will it lead to higher inflation around the world?

Because energy features prominently in consumer price gauges, policy makers look to core indexes that remove volatile components. If the run-up in prices proves to be substantial, and sustained, those costs will filter through to transportation and utilities.

8. What does it mean for central banks?

Led by the Federal Reserve, central banks around the world have taken a dovish tilt as the absence of inflation allows policy makers to shift their focus to slowing growth. That's unlikely to quickly change. The International Monetary Fund this month lowered its global growth forecast and said the world is in a "delicate moment."

-- With assistance by Sheela Tobben

[Apr 30, 2019] Concerning net revenue and production. The problem is not future price of oil. The problem is the past price of oil. Two-thirds of the total lifetime production of one of these shale wells comes out of the ground in the first two years

Notable quotes:
"... In a properly accounted world all of those wells from 2 years ago which cannot be repay their debt should have that debt apply to the new wells that are drilled now -- and erase their profit. This is forever, by the way. Anytime oil drops below whatever 60, or 55 or 50, the wells drilled then and the money borrowed to drill them is essentially guaranteed to get applied to future wells. ..."
"... But this won't happen. When you have to have the oil you get the oil. ..."
Apr 30, 2019 | peakoilbarrel.com

Watcher : 04/26/2019 at 2:32 am

Not going to scroll up for the spreadsheet above, not easy where I am sitting right now.

Concerning net revenue and production. The problem is not future price of oil. The problem is the past price of oil. Two-thirds of the total lifetime production of one of these shale wells comes out of the ground in the first two years. The price was sub-60 a couple of years back and that oil flowed and generated only that much money. That well's debt is not going to get repaid by that well. The oil came out at a lower price and that deal is done.

This means that the month number where revenue becomes negative is much sooner. And if things were logical and money was not created from thin air, the fact that the well in question cannot repay its debt does not make the debt go away.

In a properly accounted world all of those wells from 2 years ago which cannot be repay their debt should have that debt apply to the new wells that are drilled now -- and erase their profit. This is forever, by the way. Anytime oil drops below whatever 60, or 55 or 50, the wells drilled then and the money borrowed to drill them is essentially guaranteed to get applied to future wells.

But this won't happen. When you have to have the oil you get the oil.

[Apr 29, 2019] 'Hard to imagine' how global market will react when US waivers on Iran oil expire Putin

Notable quotes:
"... The waivers expire in May, meaning that those countries could potentially face US sanctions beyond that deadline. China and Turkey, on their part, have strongly condemned the American restrictions, arguing the US is not in a position to intervene in their trade ties with Iran. ..."
"... We don't have any information from our Saudi partners or other OPEC members that they are ready to pull out from the deal. ..."
"... He assured that Moscow is "fulfilling its commitments" to the production cuts agreed by OPEC and several non-OPEC producers in December. Saudi Arabia is also "unlikely" to withdraw, being the driving force behind the wider coalition. ..."
Apr 29, 2019 | www.rt.com

It's hard to foresee how US efforts to bring Iranian oil exports to zero will play out in future, Vladimir Putin admitted, saying OPEC members should live up to their obligation to keep output as low as possible if it comes true. Russia has an agreement with the Organization of the Petroleum Exporting Countries (OPEC) to cut their output by 1.2 million barrels per day, which remains in effect until July of this year, Putin said. But the US waivers – which gave a host of countries an exemption from the existing anti-Iran sanctions – expire much earlier, he reminded.

I don't imagine how the global energy market will react to that.

In November, the US re-imposed sanctions on Iran's energy, shipbuilding and banking sectors in a bid to deprive Tehran of its main sources of revenue. But it simultaneously issued waivers to China, India, Japan, South Korea, and Turkey – the main importers of Iranian crude – so that they can find alternative vendors of oil.

The waivers expire in May, meaning that those countries could potentially face US sanctions beyond that deadline. China and Turkey, on their part, have strongly condemned the American restrictions, arguing the US is not in a position to intervene in their trade ties with Iran.

Commenting on the issue, Putin said he hopes the market will eventually avoid the deficit of Iranian oil and that Iran will still be able to sell it. The comment came on the heels of conflicting reports that Donald Trump persuaded Riyadh to ramp up oil output this lowering fuel costs; these reports were denounced by OPEC officials.

Nevertheless, there is "no evidence" that any country is going to withdraw from the OPEC+ agreement to drop oil outputs, Putin said.

We don't have any information from our Saudi partners or other OPEC members that they are ready to pull out from the deal.

He assured that Moscow is "fulfilling its commitments" to the production cuts agreed by OPEC and several non-OPEC producers in December. Saudi Arabia is also "unlikely" to withdraw, being the driving force behind the wider coalition.

See also:

[Apr 28, 2019] US Sanctions Got India to Ditch Iran, Will Washington Get It to Ditch Russia Too - Global ResearchGlobal Research - Centre for by Andrew Korybko

So oil prices with rise which threaten Trump bid in 2020. Interesting times.
Notable quotes:
"... As is now known, however, appearances can be very misleading, and in actuality the same country that was vowing to "defy" the US actually ended up quietly implementing its new patron's will. ..."
Apr 24, 2019 | www.globalresearch.ca

The announcement by India's Oil Minister that his country will replace US-sanctioned Iranian oil imports with those from "major oil-producing countries" despite the dramatic Bollywood show that New Delhi has made up until this point out of "defying" US sanctions makes one seriously wonder whether India's preparing to ditch Russia next if the US imposes CAATSA sanctions against it over the S-400s.

Shattering The "Indian Illusion"

The " Indian Illusion " has been shattered after India's Oil Minister tweeted that his country will replace US-sanctioned Iranian oil imports with those from "major oil-producing countries" such as the Islamic Republic's hated GCC foes of Saudi Arabia and the UAE that America said will step up their exports in order to stabilize global prices after Washington announced that it won't renew its anti-Iranian oil sanction waivers. New Delhi made a dramatic Bollywood-like show over the past year out of "defying" US sanctions, with External Affairs Minister Sushma Swaraj announcing last May that India will only obey UNSC sanctions and not those unilaterally imposed by the US in contravention of international law.

The Oil Minister himself said back in October before the waivers were issued that India will continue buying Iranian oil in spite of the US sanctions, later crediting Prime Minister Modi a month later when the US eventually granted it the waiver. Adding "credibility" to the illusion that India's perception managers were masterfully creating, it was then reported that the country will use rupees instead of dollars when trading with Iran, a bold move that even fooled an RT columnist who headlined his op-ed on this development as a " response to US global bullying ".

As is now known, however, appearances can be very misleading, and in actuality the same country that was vowing to "defy" the US actually ended up quietly implementing its new patron's will.

[Apr 28, 2019] Rand think tank study suggest that the USA should flood the world with oil in order to overextend and unbalance Russia

Some pretty strange ideas if we are taking about oil. What they are smiling at RAND?
Notable quotes:
"... That evaluation is quite strange. The U.S. government does not produce oil. Private companies do so but only if they can make a profit. Increasing production beyond the global demand will decrease the oil price for all producers. All recent new U.S. production comes from shale oil. Optimistic estimates put the break even point for good shale oil fields at around $50 per barrel. Few fields can produce at lower costs. Most shale oil fields have a higher break even point. There is also a danger in suppressing oil prices. Many oil producing countries have U.S. friendly regimes. They need high oil prices to survive. Ruining them will not come cheap for the U.S. in geopolitical terms. ..."
"... of the 8 most promising suggestions - 6 of them are military... it seems to me these think tanks are great pr tools for the military industrial complex... who cares if the usa continues to move into 3rd world status as a nation, so long as more money for weapons can be acquired?? that is what these think tanks - rand and etc seem to want to foist on the public... it is all so very sad.. ..."
"... No, I think most US weapons procurement gives weapons that don't work as advertised, and wouldn't win wars anyway. I think it's one reason why the US military is largely only capable of spoiler wars, not actually conquering any place. (The other is the general unreliability of mercenary forces, which the US army basically is, however much they try to cultivate a militant Christian ethos.) ..."
"... I also do not believe spoiler wars help the country as a whole (as opposed to some of the owners) I think pretty much all a burden, immoral to boot and should be massively reduced. ..."
"... Even if you’re sure those companies are entirely private, if you print the current global reserve currency, can you not give “free” money to frackers and thereby make them more competitive than global peers? Sure, that’s flooding the market with an illegal subsidy. But, who can conduct proper accounting in opaque markets? ..."
Apr 28, 2019 | www.moonofalabama.org
According to RAND the best option to overextend and unbalance is to produce more oil:
Expanding U.S. energy production would stress Russia's economy, potentially constraining its government budget and, by extension, its defense spending. By adopting policies that expand world supply and depress global prices, the United States can limit Russian revenue. Doing so entails little cost or risk, produces second-order benefits for the U.S. economy, and does not need multilateral endorsement.

That evaluation is quite strange. The U.S. government does not produce oil. Private companies do so but only if they can make a profit. Increasing production beyond the global demand will decrease the oil price for all producers. All recent new U.S. production comes from shale oil. Optimistic estimates put the break even point for good shale oil fields at around $50 per barrel. Few fields can produce at lower costs. Most shale oil fields have a higher break even point. There is also a danger in suppressing oil prices. Many oil producing countries have U.S. friendly regimes. They need high oil prices to survive. Ruining them will not come cheap for the U.S. in geopolitical terms.

The second best option says RAND is to increase sanctions of Russia. This also doesn't make much sense. Russia can produce everything it needs and it has free access to the world's largest markets, China and India.

The best military options listed by RAND are all useless. All the new weapon systems Russia has revealed over the last two years are way more capable than anything the U.S. is able to field. If the U.S., as RAND advocates, invest more in certain fields, it will only be to catch up. That does not impose any new costs on Russia.

... ... ...

In all I find it a bit impertinent to publicly argue for "overextending and unbalancing Russia". Where is the need to do such?

The study demonstrates again that strategic analysis by U.S. think tanks is woefully shallow-minded. The "experts" writing these have no deep understanding of Russia, or even of the economic-political complexity of the real world.

Four of the eight best options the RAND study found start with the words "Invest more in ...". It is a sign that the foremost motive its writers had in mind is to grab more taxpayer money. Fine. Give it to them already. Overextending and unbalancing the U.S. by more abstruse expenditure for weapon systems that do not work will neither hurt me nor Russia.

james | Apr 27, 2019 2:34:51 PM | 2

thanks b.. of the 8 most promising suggestions - 6 of them are military... it seems to me these think tanks are great pr tools for the military industrial complex... who cares if the usa continues to move into 3rd world status as a nation, so long as more money for weapons can be acquired?? that is what these think tanks - rand and etc seem to want to foist on the public... it is all so very sad..

@1 steven.. well, as i read you, you are essentially supporting a continuation of the usa pouring endless money into the military then, regardless the accuracy of the accounts on the new Russian weapons.. do i have that right?

psychohistorian | Apr 27, 2019 2:42:19 PM | 3

@ b who wrote

"In all I find it a bit impertinent to publicly argue for "overextending and unbalancing Russia". Where is the need to do such?"

Russia is not beholden to the God of Mammon/global private finance world and the need to do such is to affect that position

The West is ruled by those that own private finance and all major conflict is predicated on the forceful, if necessary, maintenance of that control.

Steven T Johnson | Apr 27, 2019 2:47:15 PM | 4

james@2

No, I think most US weapons procurement gives weapons that don't work as advertised, and wouldn't win wars anyway. I think it's one reason why the US military is largely only capable of spoiler wars, not actually conquering any place. (The other is the general unreliability of mercenary forces, which the US army basically is, however much they try to cultivate a militant Christian ethos.)

However, since I also do not believe spoiler wars help the country as a whole (as opposed to some of the owners) I think pretty much all a burden, immoral to boot and should be massively reduced.

... ... ...

oglalla | Apr 27, 2019 5:34:07 PM | 18

>> The U.S. government does not produce oil. Private companies do so but only if they can make a profit. Increasing production beyond the global demand will decrease the oil price for all producers.

Even if you’re sure those companies are entirely private, if you print the current global reserve currency, can you not give “free” money to frackers and thereby make them more competitive than global peers? Sure, that’s flooding the market with an illegal subsidy. But, who can conduct proper accounting in opaque markets?

Of course, the money is not “free”. Depreciating the currency, an inflation tax, shows up in lower-quality goods (like frankenfood— we cannot afford healthy food any more) and higher prices in everything. But, again, who’s counting? The BLS and the media? Yep.

[Apr 28, 2019] Trump's Latest Iran Sanctions Show an Unraveling of US Foreign Policy

Apr 28, 2019 | therealnews.com

April 22, 2019

Col. Lawrence Wilkerson says unilateral sanctions against Iran are illegal, and show the ascendancy of John Bolton; they intensify tension with China and threaten our international position

https://www.youtube.com/embed/i0KTa2uSRro?rel=0&showinfo=0&enablejsapi=1

https://widget.spreaker.com/player?episode_id=17723879&theme=light&playlist=false&playlist-continuous=false&autoplay=false&live-autoplay=false&chapters-image=false&episode_image_position=right&hide-logo=true&hide-likes=true&hide-comments=true&hide-sharing=true&hide-download=false

The Trump administration is ramping up its campaign against Iran by announcing it will end waivers allowing eight countries to continue importing Iranian oil -- part of an attempt to drop Iranian oil exports to zero. This follows the Trump administration's categorization of part of Iran's army, the Islamic Revolutionary Guard, as a terrorist organization, and unilaterally withdrawing from the Iran nuclear deal.

"This administration, for all intents and purposes in my view, is working against the interests of the United States," Colonel Larry Wilkerson told The Real News Network's Marc Steiner. China and Turkey have already said they will not abide by the U.S. ending of the waivers, but India will possibly follow along, all of which could lead to a more profound trade war.

The decision also represents the influence of National Security Advisor John Bolton, who was in favor of these sanctions, while Secretary of State Mike Pompeo wanted the waivers to continue.

Steiner noted that the sanctions violate international law and asked whether this brings the U.S. closer to war with Iran, or if the sanctions are "in lieu of war." Wilkerson explained that John Bolton wants war even if Trump does not, and that regardless, these oil sanctions are "economic warfare" -- an especially risky international gamble.

"We're getting away with it [only] because we are the most powerful country in the world, economically, financially, and militarily," Wilkerson said. "That's not always going to be the case."

Wilkerson suspects that countries such as China, Russia, or India will eventually respond to U.S. sanctions with their own, or make an end-run around them.

"I think we're going to see other nations objecting in ways we can't really calculate right now," Wilkerson said. "And by that I mean we're going to have everything from the Chinese attempting to use other means of exchange than the dollar to the Chinese and the Russians perhaps working together to build an entirely separate and functional financial network that will eventually supplant that of the United States."

He told Steiner that it appears as though the U.S. is "suicidal," lacking any interest in diplomacy, and continuing to distance itself from its allies.

"We just lost badly in Syria, and we lost to a triumvirate of Syria under Bashar al-Assad, Russia, and Iran. Look at what happened, what has happened in Iraq. We lost a lot of men and women there. We shed blood and treasure there for an utterly ill-conceived invasion, but nonetheless we did. Now Iraq is more or less under the influence of Iran. The only ally we have in the region that we can count on at any time is an authoritarian, brutal state under a boy king who's losing one war on one flank and alienated Qatar on the other," Wilkerson said. "It's all falling apart. We're losing everywhere I look in the world, losing badly to that man in Moscow who picks up the pieces and you know, goes to Cuba when Marco Rubio decides he doesn't like Cuba, goes to Venezuela when we decide we might have an option for Venezuela that will include military force. Putin is the strategist in the world right now picking up on every piece we drop -- and we're dropping too many." Story Transcript MARC STEINER Welcome to The Real News Network. I'm Marc Steiner. Great to have you all with us. Trump is stepping up his campaign against Iran once again, announcing that he will end waivers that allowed eight countries to continue importing Iranian oil. He wants to drive Iranian oil exports to zero. All this comes on the heels of officially labeling the Revolutionary Guard as a terrorist organization and of course, forcing the U.S. to unilaterally pull out of the Iran Nuclear Deal. Well what course are we on? Are we inching toward a war with Iran? Are these intensified sanctions just an alternative to all-out war? How could the U.S. just unilaterally impose international sanctions? Doesn't that violate international law? Can he do it because the U.S. has a vital role in the international system of finance? Both Turkey and China have already announced they will not abide by Trump's unilateral declaration of sanctions. Does this intensify our trade war with China? We'll see. Joining us here at The Real News once again is Colonel Lawrence Wilkerson, who served as Chief-of-staff to U.S. Secretary of State Colin Powell, retired from U.S. Army, and is now Distinguished Adjunct Professor at the College of William and Mary where he teaches U.S. National Security. I welcome and good to have you back with us here on The Real News.

COL. LAWRENCE WILKERSON Good to be back again.

MARC STEINER So before we start, let's run this short piece by Secretary of State Mike Pompeo and what he had to say about the intensifying of sanctions.

MIKE POMPEO Today I am announcing that we will no longer grant any exemptions. We're going to zero, going to zero across the board. We will continue to enforce sanctions and monitor compliance. Any nation or entity interacting with Iran should due it's diligence and err on the side of caution. The risks are simply not going to be worth the benefits. We've made our demands very clear to the Ayatollah and his cronies: end your pursuit of nuclear weapons, stop testing and proliferating ballistic missiles, stop sponsoring and committing terrorism, halt the arbitrary detention of U.S. citizens. Our pressure is aimed at fulfilling these demands and others and I will continue to accelerate until Iran is willing to address them at the negotiating table.

MARC STEINER So what's your instant analysis of what we've just seen here, what we're seeing, Larry?

COL. LAWRENCE WILKERSON First, the dispute within the administration -- much ballyhooed between Bolton and Pompeo and Brian Hook, Pompeo's main man on Iran -- is apparently over and Bolton won. Pompeo and Brian Hook were not in favor of going all the way on oil sanctions. They were in favor of continuing the waivers for countries like China and India, and so forth. So that means Bolton's won. That's an ominous victory in my mind. More ominous was Bolton and Pompeo and Pompeo in particular's testimony to the Congress about the "connections between al-Qaeda and Iran." I've been there done that. I remember when George Tenet very forcefully and powerfully in late January-early February of 2003, pointed out to Colin Powell who had just said, toss that stuff out of my presentation to the United Nations. It stinks. That stuff being, connections between al-Qaeda and Baghdad over 9/11. Pompeo essentially said to Rand Paul in questioning him in the Senate and elsewhere, that there were connections between al-Qaeda and Iran, and implied that those connections gave the president the right to go to war with Iran without having to go to the Congress of the United States. In other words, the original A.U.M.F. authorization for the use of military force issued after 9/11, pertained some seventeen to eighteen years later to Iran.

MARC STEINER And that's where you skin yourself. Most people who know this arena, know that area, the contradiction of saying Iran and al-Qaeda are one or are working with one another, just on its face doesn't make any sense.

COL. LAWRENCE WILKERSON Nonsense just as it was with Saddam Hussein. We all know now, but it was a very powerful thing for Colin Powell to tell the U.N. Security Council and even more powerful for him to tell the American people that. And that's what Trump and Bolton and Pompeo now are trying to duplicate: another specious case for war.

MARC STEINER So do you think -- speaking of that -- are we inching our way towards war with Iran, or do you think what we're seeing, these sanctions, are actually in lieu of war? What do you think the dynamic is here?

COL. LAWRENCE WILKERSON I don't think Trump wants war, but I know John Bolton does. So I have to imagine that there is going to be a come to Jesus meeting or some such resolution with Donald Trump if Bolton persists in wanting to use military force and Donald Trump doesn't. On the side of all of this, is Trump's new partner in crime, Bibi Netanyahu. We don't know what Bibi promised Donald Trump when Donald Trump weighed in on Bibi's election. I'm told by people who know these sorts of things in Israel, that had Trump not weighed in heavily for Bibi, that he might not have won, that it might have been a lot closer that it was, and it was pretty close anyway. So I don't know what Bibi promised Trump in return. It might be that he conducts whatever military operation is conducted with respect to Iran. Anything's possible here with these two characters.

MARC STEINER But the whole Bibi question is something we've spent a half-an-hour, hours just talking about what that relationship is, and who's driving whose foreign policy when it comes to Iran especially.

COL. LAWRENCE WILKERSON Yes. Gideon Levy in Haaretz was right when he said U.S.-Middle East policy is not made in Washington. It's made, he said Tel Aviv, but now he would say Jerusalem.

MARC STEINER So let me ask you another question. How can the United States just unilaterally impose international sanctions? I thought that's something the Security Council would have to do and people are writing this as a violation of international law. So from your perch when you were the Secretary of State and now, how does that play into all this?

COL. LAWRENCE WILKERSON I think it plays very dangerously. We are becoming -- through our manipulation of the Swiss system and other means in the world for financial transactions -- a pariah in the world. Very much despised and even hated in the world and increasingly, by our own friends and allies like Germany, France, Britain, and so forth. This manipulation of this system that we largely set up for tracking terrorist monies and so forth, has been turned into a very sophisticated weapon. It's economic warfare in anybody's book and the only reason we're getting away from it, you just hinted at. We're getting away with it because we are the most powerful country in the world -- economically, financially, and militarily. That's not always going to be the case and I suspect there are going to people like China, like Russia, like India, like other countries in the world, finally getting tired of this and start reciprocating and building other systems to go around ours.

MARC STEINER Stepping up the sanctions against Iran and saying nobody can buy any oil from Iran at all, zeroing them out -- China and Turkey have already said we're not abiding by this. You can't tell us how to run our economy and what we're doing. India is caught between a rock and a hard place. They don't want to go with this. Ten percent of their crude oil comes from Iran, but they're in a tough bind given who finances them as well. So how is this going to play out? This can lead to greater trade wars between China and the U.S. How do you see this all tumbling out, both in terms of Iran and our relationship with those other nations?

COL. LAWRENCE WILKERSON I think we're going to see other nations objecting in ways that we can't really calculate right now. By that I mean, we're going to have everything from the Chinese attempting to use other means of exchange than the dollar, to the Chinese and the Russians perhaps working together to build an entirely separate and functional financial network that will eventually supplant that of the United States. So this has enormous potential for backfiring, just like all the enemies we are creating in the world right now and the allies that we're distancing ourselves from. These are not positive moves by the United States. If I were on Mars looking down at the United States right now, and I were some wise Martian statesmen, and I was trying to figure out what the United States -- the current hegemon of the world -- was trying to do, I would think we were trying to commit suicide. It's as if we do not have any means of doing anything diplomatically or otherwise, that doesn't rebound to our discredit. Look at what's happened. We just lost badly in Syria and we lost to a triumvirate of Syria under Bashar al-Assad, Russia, and Iran. Look at what has happened in Iraq. We lost a lot of men and women there. We shed blood and treasure there for an utterly ill-conceived invasion, but nonetheless we did. Now Iraq is more or less under the influence of Iran. The only ally we have in the region that we can count on at any time is an authoritarian, brutal state under a boy-king who's losing one war on one flank, and alienated Qatar on the other. Our latest NATO in the Middle East just lost its most formidable partner, Egypt. It's all falling apart. We're losing everywhere I look in the world and losing badly to that man in Moscow who picks up the pieces and goes to Cuba when Marco Rubio decides he doesn't like Cuba. He goes to Venezuela when we decide we might have an option for Venezuela that would include military force. Putin is the strategist in the world right now, picking up on every piece we drop, and we're dropping too many.

MARC STEINER So very quickly here before we run out of time, one quick question. If you were sitting in the halls of power at this moment, and your job is Chief-of-staff or the Secretary of State, I'm curious what you would be saying to a president that said we have to do this. What would you say is the alternative? What would you be saying at this moment?

COL. LAWRENCE WILKERSON Which one do you want to pick? [laughter] Kim Jong-un is going to fire a ballistic missile or he's going to do a nuclear test or both sometime around Christmas.

MARC STEINER Right.

COL. LAWRENCE WILKERSON This administration for all intents and purposes, in my view, is working against the interests of the United States. So the first thing I would do is sit down and say, Mr. President, please before I walk out of here and go back to Foggy Bottom and retire from my position because you are going to fire me, I want to know what you think the national interests of the United States are. You said you were going to "make America great again." You are destroying America. You said you were going to bring jobs back. You have only brought the jobs back that the last three years of the Obama administration generated, because no president ever generates them instantly. So you haven't done anything yet that looks like it's in the interest of the United States and you've done a whole load of things that are clearly not in our interest, not the least of which is to drive our allies away and make many enemies whom you said all options are on the table confronting. Please, Mr. President. Tell me what you think our interests are.

MARC STEINER And with that, I want to say thank you once again. Colonel Larry Wilkerson, always a pleasure to have you here at The Real News. And thanks so much for your thoughts and wisdom.

COL. LAWRENCE WILKERSON Thank you.

MARC STEINER And I'm Marc Steiner here for The Real News Network. Thank you all for joining us. Take care.

[Apr 27, 2019] Trump Drops The Other Iran Oil Shoe

Notable quotes:
"... Bolton says that this is all designed to make Iran be a "normal country," as if Saudi Arabia were such. ..."
Apr 27, 2019 | angrybearblog.com

Indeed, this looks like a potentially much more dangerous situation. If these major nations obey Trump (I suspect some will not), Iran might be tempted to take more aggressive action, with blocking the Straits of Hormuz among the more serious. This would really spike the price of oil, and quite possibly trigger a war. This may be what the Trump people want, with their real policy apparently being "regime change." However, so far the only regime change seems to be rising influence of hardliners, with a new hardline commander for the now sanctioned Revolutionary Guards being appointed. He has been talking about missiles getting fired on Israel from Lebanon by Hezbollah. Is this what Netanyahu really wants?

I think those who think the Iranian regime will easily be overthrown are more deluded than those who advocated invading Iraq (and some of them are the same people, see John Bolton especially). This has the potential of really seriously distracting people from the Mueller Report, but not at all in a good way.

... ... ...

Another Addendum: In WaPo this morning they report that the other three nations are Greece, Italy, and Taiwan, and that they have already stopped buying Iranian oil under US pressure. Also, apparently Japan has been stockpiling oil from there and has stopped further purchases already in anticipation of just this move by the US. OTOH, both China and Turkey are talking about not obeying the US order. No word out of either India or South Korea so far.

Bolton says that this is all designed to make Iran be a "normal country," as if Saudi Arabia were such. As it is, indeed the hawkish new leader of the Iranian Revolutionary Guards has spoken publicly of possibly blocking the Straits of Hormuz, as I suggested they may well be contemplating.

[Apr 27, 2019] Fundamental news moving paper oil market: Trump said something

Apr 27, 2019 | peakoilbarrel.com

Eulenspiegel x Ignored says: 04/26/2019 at 9:52 am

The oil price is falling hard today.

Is there any news, Trump giving waivers or some new source of oil available?

Ok, found it.
Fundamental news: Trump said something:
https://www.zerohedge.com/news/2019-04-26/oil-tumbles-after-trump-says-he-called-opec-gas-prices-are-coming-down

So we get 40$ oil soon ;).

Energy News x Ignored says: 04/26/2019 at 10:03 am
It seems President Trump called on OPEC to bring down oil prices
Reuters headline https://pbs.twimg.com/media/D5FZA8VW4AA6QNI.png
GuyM x Ignored says: 04/26/2019 at 11:52 am
I can't imagine that moron influencing much.
ProPoly x Ignored says: 04/26/2019 at 3:47 pm
It can manipulate short term trading because that's driven by headline reading computers and other algos. Anything longer than that, talking price doesn't work if there's a serious supply or demand issue. It's a near-zero elasticity industrial commodity.
Ron Patterson x Ignored says: 04/26/2019 at 12:03 pm
He called OPEC? Just whom at OPEC did he speak with? OPEC is a group of oil exporting nations. They meet once every six months or so to decide what they will do, if anything.
No one can just call OPEC and OPEC will decide to produce more oil. They have to meet, talk it over, and decide what to do.
Iron Mike x Ignored says: 04/26/2019 at 12:35 pm
Trump probably just called his employer .AIPAC.

[Apr 27, 2019] Damn, and all along I thought Trump got the credit. Just pay attention to how fast the ship is sinking.

Apr 27, 2019 | peakoilbarrel.com

Ron Patterson x Ignored says: 04/26/2019 at 8:05 pm

Oil price recedes after 'knee-jerk' reaction to Russian suspensions

The price of oil slipped on Friday, more than offsetting Thursday's gains on a "knee-jerk" reaction to the suspension of some Russian exports on quality concerns.

Brent crude, the international oil benchmark, on Thursday rose above $75 a barrel for the first time in six months as Germany and Poland halted imports from Russia because of contamination in the Druzhba pipeline.

But analysts said the market had over reacted and Brent pared its gains later in the day, with the slip in price continuing into Friday as the marker fell 1.3 per cent to $73.39.

"Fears of a supply shock were greatly exaggerated," said Stephen Brennock, an analyst at PVM. "After all, refineries usually hold ample crude stockpiles to guard against such disruptions. Little wonder then that the initial knee-jerk price reaction petered out."

Damn, and all along I thought Trump got the credit. :-)

GuyM x Ignored says: 04/26/2019 at 8:53 pm
Well, I wouldn't classify the loss of one million barrels a day as exactly a knee jerk reaction. We are supposed to have a 1.3 million barrel a day increase in demand. Ok, that's 2.3 more we need. Oops, US can't supply that, Canada is down, and Brazil and Argentina will be essentially flat. Oh, oh, we need to add another 600k loss from Venezuela, and probably another million from Iran, making about 3.9 million more needed. Other depletion .3 to .6 million? Spare capacity from OPEC is 3 million? Or, that's the fairy tale. Yeah, it's ok to dream.

Just pay attention to how fast the ship is sinking.

[Apr 25, 2019] Paper oil and QE

Apr 25, 2019 | off-guardian.org

BigB says Apr, 24, 2019

Overproduction of capital – seeking a high, no risk return – is a certainty. Especially with continuing QE. There is no end game now. That capital will find its way into derivative casino capital gambling – of which only 2% ends up as a commodity changing hands. The rest is hidden toxic exposure making the banking system untenable. Other outlets include mergers and acquisitions (toward oligopolies of power); leveraged buyouts; and asset stripping destroying any last real productive capacity for short term 'Global Death Protocol' (GDP returns – one of the sensible points Monbiot made it is no substitute Human Development Index). Pension fund raiding: there is thought to be a $30 tn black hole already – now they want to release $90tn 'locked assets' without even the slightest chance of ever getting an ROI. Overproduced capital will also find its way in to the tech bubble – funding our AI-redundancy. Oil-rent, commodity-rent, bio-pharma-rent, agi-rent, and tech-rent seems to be a major part of the capitalist death throes. But you cannot rent a host humanity by making them redundant. Now they also want to rent nature back to us. Add in spiralling exponential debt; EROI and a slow-burn falling net-energy crisis; and authoritarian states merging with bureaucratised corporate capital down to the local infrastructure level its humanity versus corporate state insanity.

And the bleated hope of sheep is that a nativist leader – like Jeremy Corbyn – will come along and save us. Reality is going to have to hit the majoritarian massif really hard in the face to wake people up to the systemic fragility of globalised capitalism. Unfortunately, its internecine internal contradictions may prove fatal before that. My hope is that something better may rise from the ashes: a humanist society contra all the fatal contradictions of relentless coercive capital accumulation. Given the level of political and ecological acumen we encounter on a daily basis I'm presently not too optimistic. But that can change, rapidly. Consciousness is not timebound or limited by causality (see below). Now! would be a good time for a consciousness evolutionary explosion a Big Bang of a new reality. Depending on what the Big Bang of the old leaves intact! There will be a solution. It might not be optimal though. I presently can't see any smooth transition taking place. Carpe deum and enjoy the ride over the ever quickening rapids of the net energy falls!

[Apr 25, 2019] Pepe's item mentions the $2.5 Quadrillion of derivatives "would start a chain reaction of destruction" in response to rapid spikes in oil price

Apr 25, 2019 | www.moonofalabama.org

karlof1 , Apr 24, 2019 1:55:28 PM | link

Pepe's item mentions the $2.5 Quadrillion of derivatives "would start a chain reaction of destruction" in response to rapid spikes in oil price that per previous discussions would rebound asymmetrically onto Outlaw US Empire and generate a massive crisis far worse than soaring gasoline prices as that would constitute a direct hit on Deep State interests and it would take casualties for the first time.

Oh, 100K Tons of "diplomacy" boast/threat made by the Empire's ambassador to Russia:

"Diplomatic communication and dialogue coupled with the strong defence these ships provide demonstrate to Russia that if it truly seeks better relations with the United States, it must cease its destabilising activities around the world."

Two Imperial carrier groups are now in the Med offering themselves as juicy targets. Huntsman's bluff and buster is yet another example of Pompeo's idiocy. I thought the RT headline "Mask off? US ambassador to Russia says US practices diplomacy with aircraft carriers" more appropriate for its item about Huntsman's hubris.

A check of San Francisco gas prices via GasBuddy shows a very broad range from $3.99-4.59/gal, while here in Oregon it's @3.25; and at Refinery Central--Houston--it's not over $3/gal yet. So, there's a ways to go before the pain threshold is reached nationally.

Today marks day 2 for the 8th annual Moscow Conference on International Security whose "main topic" this year focuses on Middle East Issues , which will certainly include the undeclared hybrid war between Iran and the Outlaw US Empire. Hopefully we will get some reporting on the discussions taking place there. Shoigu spoke yesterday, while Lavrov speaks today.


karlof1 , Apr 24, 2019 2:29:03 PM | link

In a related development, the Parliamentary Baghdad Summit had its one day and reportedly didn't accomplish much aside from getting former adversaries together in the same room. I'm hopeful of finding a more detailed report. That most of the GCC wasn't invited seems to be due to the Summit's theme being Iraqi neighbors. One might have expected either Iran or Saudi to not send a representative given past/current enmity, but both attended and didn't attack each other. That Saudi and UAE sent flood relief aid to Iran is a very good sign that the Umma is finally reforming to deal with its primary enemies--Zionistan and the Outlaw US Empire. Of course, in any armed conflict between Iran and the Empire, being on better terms with GCC and Saudi will be important--there'll be no coalition of the bullied and bribed Arab NATO.

What I'm seeing is Iran gaining more regional allies at the expense of the Outlaw US Empire. The just concluded visit of Pakistan PM Khan to Iran is a major case in point as is the détente between Iran and Qatar. And continued flack targeting Saudi within the US Congress is certainly affecting King Salman's viewpoints. Blowback from previous Imperial hubris initiated by Bolton and Pompeo's CIA predecessors is working against their policy goals. IMO, the "waiver holders" are unlikely to waver as there're no market substitutes for Iranian oil. If they get targeted too, then an escalation in blowback will occur as every Outlaw US Empire move is illegal and immoral.

Variance Doc , Apr 24, 2019 4:42:24 PM | link
@ karlof1 | Apr 24, 2019 2:29:03 PM | 48

Most of the of the amateurs reporting "derivative amounts" are stated in notional values, which is wrong (Love Pepe's work, but he is not a financial economist.) It's the offset value (not including counter-party amounts) that matter and it's far less than notional. So, no end of the world hysteria needed.

Also, it's marginal price of gas relative to a person's balance sheet that matters. I think that's what b is referring to. In english, most people have a fixed monthly income and gas is a big chunk of expenses (for those who actually work). A gas price increase of $0.25 or more means that they have to reduce expenses somewhere else (unlikely since 'mericans love their lifestyles) or go further into debt, which means they pull-forward future consumption. That's what partly causes the slowing of economic future activity. That is ONE reason this extended (FED) monetary policy is so destructive to the real economy.

[Apr 24, 2019] Is case of US Iran sanctions China has a very difficult dilemma

Apr 24, 2019 | www.moonofalabama.org

Schmoe , Apr 24, 2019 7:20:33 PM | link

China has quite a dilemna:

a) violate sanctions and risk severe penalties; or

b) go along with sanctions but if Iran pulls the pin on the world economy, China could very well completely crash economically, to the point that I wonder if there could be a revolution. Also, everyone knows about China's Muslim issues, Iran could say "it would be shame if someone armed those tens of million of Muslims you have".

I don't envy their position.

karlof1 , Apr 24, 2019 7:21:01 PM | link

Iranian Foreign Minister Mohammad Zarif has conducted an interview with Reuters saying Trump didn't want war but could be "lured into one." As usual, Reuters doesn't just provide a transcript of the interview, only publishing what it wants to publish. We'll need to await the official Iranian transcript to note what else was said and what was reported out-of-context.
karlof1 , Apr 24, 2019 7:30:49 PM | link
Schmoe @69--

China will ignore the illegal Outlaw US Empire diktat and carry on as before. If it's challenged, it has the means to defend itself and will. The Empire is beholden to China not the other way-round.

[Apr 24, 2019] The big fish are China and India. Those are the major users of iranian oil, and neither of them is likely to desist

Apr 24, 2019 | www.moonofalabama.org

nervos belli , Apr 24, 2019 1:17:03 PM | link

@39
Nobody cares what Italy and Greece need. They are good little vassals and will do what told. Turkey is of course a bigger problem, but might just be mostly overlooked and ignored.

The big fish are China and India. Those are the major users of iranian oil, and neither of them is likely to desist. What will the US do with them? Not possiple to financially sanction China.

That's why I think there will be lots of talk, but no action against anyone still buying iranian oil. Especially since Venezuela is not resolved. Nobody, not even the US, intends to march into Venezuela to "liberate" any oil wells any time soon.
While Maduro might some day collapse under his camarilla's corruption and his own incompetence, it will take a long time, probably years. Especially the opposition against him is similary incompetent. My guess is, it will take longer than Trump will be in office.

[Apr 24, 2019] Secretary of State Mike Pompeo and National Security Advisor John Bolton have vowed to strangle Iran and cut off all oil exports.

Apr 24, 2019 | www.unz.com

Agent76 , says: April 23, 2019 at 10:26 pm GMT

Apr 23, 2019 Pompeo Finally Tells The Truth: 'We Lie, We Cheat, We Steal'

Secretary of State Mike Pompeo and National Security Advisor John Bolton have vowed to strangle Iran and cut off all oil exports.

[Apr 24, 2019] As Oil Prices Rise on End of Iran Waivers, Trump Aide Vows Oil Prices Won't Rise

Kudlow always looks to me like cocaine infused idiot. Not a bad showman though.
Apr 24, 2019 | news.antiwar.com

One would think hindsight would be 20:20 on the US ending Iran oil waivers on Monday and the surging price of oil in the first 48 hours since that happened. The Trump Administration remains upbeat, however, and confident that what clearly just happened won't happen.

Trump economic adviser Larry Kudlow made comments Tuesday at the National Press Club, comments which again came two days after the announcement, and after two days of prices going up substantially, assuring that there would be no price increase.

"I don't see any palpable impact. The world is awash with oil," Kudlow told the audience. That clearly appears to have been the administration's rationale, with several officials emphasizing the excess oil on the market before this move was ultimately made.

Their math was a bit off though. Estimates of tens of thousands of additional barrels of oil supply being available were slammed headlong into a US move that aimed to stop Iran's roughly one million barrels of daily oil sales. This has already lead to a rush on the market, with nations trying to secure supply while they can, and at higher prices.

All of this was well predictable. Indeed, financial outlets had already predicted that the administration would have to keep the waivers program going specifically because they couldn't afford this increase in global prices. Instead, they deluded themselves into thinking it wouldn't happen, and when it did, continued to maintain that it didn't, or wouldn't.

[Apr 24, 2019] Trump: Stop buying Iranian oil or face sanctions

Apr 23, 2019 | www.youtube.com

Oil prices are on the rise after the United States announced a new crackdown on Iran's oil exports aiming to reduce them to zero.
Iran's threatening retaliation by blocking the Strait of Hormuz - the world's lifeline of oil from all Gulf countries, including Saudi Arabia, Kuwait and Iraq.
The move has


K kaye , 10 hours ago

Can we sanction food from Pompeo? Looks like his jacket about to burst open...

noshadova , 11 hours ago

Why would the whole world be afraid of USA ? Ans. Greed and lack of integrity by the leaders !

Randy Pederson , 4 hours ago

The US are the only ones that are currently bombing multiple countries at the same time with no declaration of war.

SA SHA , 11 hours ago

Economic Sanctions === Economic Terrorist Attack Recent terrorist attacks indicate that the United States is using extremist organizations to provoke religious wars. The aim is to split Eurasia and make troubles for Europe. The United States is very afraid of peace in Eurasia, because it will make the United States a third world country.

[Apr 24, 2019] Trump: Stop buying Iranian oil or face sanctions Inside Story

Apr 23, 2019 | www.youtube.com

Oil prices are on the rise after the United States announced a new crackdown on Iran's oil exports aiming to reduce them to zero.
Iran's threatening retaliation by blocking the Strait of Hormuz - the world's lifeline of oil from all Gulf countries, including Saudi Arabia, Kuwait and Iraq.
The move has

[Apr 23, 2019] Mapping The Countries With The Most Oil Reserves

Apr 23, 2019 | www.zerohedge.com

1969wasgood , 38 minutes ago link

What it really means. 42 more years, and it's gone. 1.531 trillion bbls divided by a no grow of 100 million bbls consumption a day, simple math. And we rant about finding another 50 billion bbls. That only takes the total of the recoverable oil to 1.581 trillion bbls.

Oil will leave us before we leave oil. We are heading for mass starvation. There are no electric fire engines, there are no electric ambulances, there are no electric farm machinery, there are no electric military machinery, there are no electric boats or ships or ferries, there are no electric airplanes, fighter jets, helicopters, there are 1.4 billion cars in the world of which 3 million are electric, if Tesla quadruples production it couldn't replace the gas and diesel powered vehicles in 1200 years, and the Chinese electrics are crap.

deFLorable hillbilly , 1 hour ago link

This map is complete BS. No one, especially some spy agency, knows how much of anything is underground.

The only known fact is current production. "Known Reserves" is a hopelessly politicized exercise in conjecture, primarily for the purpose of securitizing international loans at favorable rates.

Yen Cross , 1 hour ago link

These numbers are complete horse-****.

U.S. Crude Oil, Natural Gas, and Natural Gas Proved Reserves, Year-end 2017

Proved reserves of crude oil in the United States increased 19.5% (6.4 billion barrels) to 39.2 billion barrels at Year-End 2017, setting a new U.S. record for crude oil proved reserves. The previous record was 39.0 billion barrels set in 1970.

USGS Announces Largest Oil And Gas Deposit Ever Assessed In U.S. : The Two-Way : NPR

The USGS says all 20 billion barrels of oil are "technically recoverable," meaning the oil could be brought to the surface "using currently available technology and industry practices."

Between the corrupt politicians, and oil execs. these morons can't even concoct a decent lie anymore.

Minamoto , 1 hour ago link

Those numbers are somewhat laughable... Venezuela's gigantic reserves require lots of processing to get the oil sands into proper crude.

In addition, Russia's total reserves are underestimated as most of Russia's territory has not been geologically explored.

bismillah , 1 hour ago link

Most oil reserve claims with OPEC countries are hugely exaggerated.

And reserve claims by others are faked higher than they really are, too.

[Apr 16, 2019] The incompetent, the corrupt, the treacherous -- not just walking free, but with reputations intact, fat bank balances, and flourishing careers. Now they re angling for war with Iran.

Highly recommended!
Apr 15, 2019 | www.theamericanconservative.com

Return of the Just April 14, 2019 at 10:46 am

You're right. I see people like Robert Kagan's opinions being respectfully asked on foreign affairs, John Bolton and Elliott Abrams being hired to direct our foreign policy.

The incompetent, the corrupt, the treacherous -- not just walking free, but with reputations intact, fat bank balances, and flourishing careers. Now they're angling for war with Iran.

It's preposterous and sickening. And it can't be allowed to stand, so you can't just stand off and say you're "wrecked". Keep fighting, as you're doing. I will fight it until I can't fight anymore.

Ken Zaretzke , says: April 14, 2019 at 3:38 pm
Fact-bedeviled JohnT: “McCain was a problem for this nation? Sweet Jesus! There quite simply is no rational adult on the planet who buys that nonsense.”

McCain had close ties to the military-industrial complex. He was a backer of post-Cold War NATO. He was a neoconservative darling. He never heard of a dictator that he didn’t want to depose with boots on the ground, with the possible exception of various Saudi dictators (the oil-weaponry-torture nexus). He promoted pseudo-accountability of government in campaign finance but blocked accountability for the Pentagon and State Department when he co-chaired the United States Senate Select Committee on POW/MIA Affairs with John Kerry.

And, perhaps partly because of the head trauma and/or emotional wounds he suffered at the hands of Chinese-backed Commies, it’s plausible to think he was regarded by the willy-nilly plotters of the deep state as a manipulable, and thus useful, conduit of domestic subversion via the bogus Steele dossier.

Unfortunately, the episode that most defines McCain’s life is the very last one–his being a pawn of M-16 in the the deep state’s years-long attempt to derail the presidency of Donald Trump.

Joe Dokes , says: April 14, 2019 at 11:55 pm
Measuring success means determining goals. The goals of most wars is to enrich the people in charge. So, by this metric, the war was a success. The rest of it is just props and propaganda.
Andrew Stergiou , says: April 15, 2019 at 5:11 am
“Pyrrhic Victory” look it up the Roman Empire Won but lost if the US is invaded and the government does not defend it I would like to start my own defense: But the knee jerk politics that stirs America’s cannon fodder citizens is a painful reminder of a history of jingoist lies where at times some left and right agree at least for a short moment before the rich and powerful push their weight to have their way.

If All politics is relative Right wingers are the the left of what? Nuclear destruction? or Slavery?

Peter Smith , says: April 15, 2019 at 5:13 am
My goodness! I am also a veteran, but of the Vietnam war, and my father was a career officer from 1939-1961 as a paratrooper first, and later as an intelligence officer. He argued vigorously against our Vietnam involvement, and was cashiered for his intellectual honesty. A combat veteran’s views are meaningless when the political winds are blowing.

Simply put, we have killed thousands of our kids in service of the colonial empires left to us by the British and the French after WWII. More practice at incompetent strategies and tactics does not make us more competent–it merely extends the blunders and pain; viz the French for two CENTURIES against the Britsh during the battles over Normandy while the Planagenet kings worked to hold their viking-won inheritance.

At least then, kings risked their own lives. Generals fight because the LIKE it…a lot. Prior failures are only practice to the, regardless of the cost in lives of the kids we tried to raise well, and who were slaughtered for no gain.

We don’t need the empire, and we certainly shouldn’t fight for the corrupt businessmen who have profited from the never-ending conflicts. Let’s spend those trillions at home, so long as we also police our government to keep both Democrat and Republican politicians from feathering their own nests. Term limits and prosecutions will help us, but only if we are vigilant. Wars distract our attention while corruption is rampant at home.

Fayez Abedaziz , says: April 12, 2019 at 12:25 am
Thanks, I appreciate this article.
I’ll make two points, my own opinion:
it’s the same story as Vietnam, the bull about how the politicians or anti-war demonstrators tied the military ‘hand,’ blah, blah.
Nonsense. Invading a nation and slaughtering people in their towns, houses…gee…what’s wrong with that, eh?
The average American has a primitive mind when it comes to such matters.
Second point I have, is that both Bushes, Clinton, Obama, Hillary and Trump should be dragged to a world court, given a fair trial and locked up for life with hard labor… oh, and Cheney too,for all those families, in half a dozen nations, especially the children overseas that suffered/died from these creeps.
And, the families of dead or maimed American troops should be apologized to and compensation paid by several million dollars to each.
The people I named above make me sick, because I have feelings and a conscience. Can you dig?
kingdomofgodflag.info , says: April 12, 2019 at 8:19 am
Though there is a worldly justification for killing to obtain or maintain freedoms, there is no Christian justification for it. Which suggests that Christians who die while doing it, die in vain.

America’s wars are prosecuted by a military that includes Christians. They seldom question the killing their country orders them to do, as though the will of the government is that of the will of God. Is that a safe assumption for them to make? German Christian soldiers made that assumption regarding their government in 1939. Who was there to tell them otherwise? The Church failed, including the chaplains. (The Southern Baptist Convention declared the invasion of Iraq a just war in 2003.) These wars need to be assessed by Just War criteria. Christian soldiers need to know when to exercise selective conscientious objection, for it is better to go to prison than to kill without God’s approval. If Just War theory is irrelevant, the default response is Christian Pacifism.

Mark Thomason , says: April 12, 2019 at 10:43 am
“has gone un-investigated, unheard of, or unpunished.”

The one guy who did tell us has just been arrested for doing exactly that.

The arrest is cheered by those who fantasize about Russiagate, but it is expressly FOR telling us about these things.

Stephen J. , says: April 12, 2019 at 10:51 am
“Iraq Wrecked” a lot of innocent people. Millions are dead, cities reduced to rubble, homes and businesses destroyed and it was all a damned lie. And the perpetrators are Free.
Now there is sectarian violence too, where once there was a semblance of harmony amongst various denominations. See article link below.

“Are The Christians Slaughtered in The Middle East Victims of the Actions of Western War Criminals and Their Terrorist Supporting NATO ‘Allies’”?

http://graysinfo.blogspot.com/2017/04/are-christians-slaughtered-in-middle.html

the the , says: April 12, 2019 at 11:53 am
We are a globalist open borders and mass immigration nation. We stand for nothing. To serve in this nation’s military is very stupid. You aren’t defending anything. You are just a tool of globalism. Again, we don’t secure our borders. That’s a very big give away to what’s going on.
the the , says: April 12, 2019 at 11:57 am
If our nation’s military really was an American military concerned with our security we would have secured our border after 9/11, reduced all immigration, deported ALL muslims, and that’s it. Just secure the borders and expel Muslims! That’s all we needed to do.

Instead we killed so many people and imported many many more Muslims! And we call this compassion. Its insane.

Kouros , says: April 12, 2019 at 12:02 pm
Maybe if Talibans get back in power they will destroy the opium. You know, like they did when they were first in power…. It seems that wherever Americans get involved, drugs follow…
JohnT , says: April 12, 2019 at 2:03 pm
“Yet, we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all involved. So is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.” In Eisenhower’s televised farewell address January 17, 1961.
Rational thought would lead one to believe such words from a fellow with his credentials would have had a useful effect. But it didn’t. In point of fact, in the likes of Eric Prince and his supporters the notion of war as a profit center is quite literally a family affair.
Ken Zaretzke , says: April 12, 2019 at 2:10 pm
The military-industrial complex couldn’t accomplish this all by its lonesome self. The deep state was doing its thing. The two things overlap but aren’t the same. The deep state is not only or mainly about business profits, but about power. Power in the world means empire, which requires a military-industrial complex but is not reducible to it.

We now have a rare opportunity to unveil the workings of the deep state, but it will require a special counsel, and a lengthy written report, on the doings in the 2016 election of the FBI (Comey, Strzok, et. al.), and collaterally the CIA and DIA (Brennan and Clapper). Also the British government (M-16), John McCain, and maybe Bush and Obama judges on the FISA courts.

[Apr 15, 2019] Sour crude became more expensive, because it has higher energy content and more opetimal mix of various hydrocarbons for refining

Notable quotes:
"... As the supply-side structure has changed, the spread between sour and the historically far more expensive light, sweet crude has thinned and even flipped in some instances. ..."
"... "All refiners are looking for Urals or a Urals replacement," said a third trader in an international trading firm. "And we see that it won't be enough for everyone." ..."
Apr 12, 2019 | www.sott.net

Initially, Europeans gravitated to heavy, sour Venezuelan oil when sanctions on Iran hit in early November but then Washington also placed sanctions on the Latin American country in late January in a bid to oust President Nicolas Maduro.

Even though sanctions on Venezuelan crude will not come into effect until the end of April, the oil is effectively already untouchable as the U.S. State Department has exerted direct pressure on foreign companies to stop all dealings.

The two sets of sanctions combined have taken at least 800,000 barrels per day (bpd) out of the market, which is as much as what the Organization of the Petroleum Exporting Countries agreed to cut.

The United States granted waivers on Iranian oil to six jurisdictions including three countries in the region - Italy, Greece and Turkey - but only Turkey was able to continue purchases. It remains unclear whether the current waivers will be extended in May.

THE SOUR RUSH

The situation is set to worsen as European refiners emerge from their springtime maintenance just as Middle Eastern Gulf sour crude producers increasingly favor Asia, where refining capacity in the near term is set to jump.

Saudi Arabia, a major sour crude producer, is shouldering the bulk of the OPEC and non-OPEC cuts. Between October 2018 and March this year, the kingdom slashed its exports to Europe by nearly half, Refinitiv Eikon data shows.

Iraq reduced its contracted volumes for European refiners in 2019 and increasingly sells its oil to the highest bidder via tender. Iraqi supplies to Europe fell by over 40 percent to 355,000 bpd in March compared with 615,000 bpd in October 2018, Refinitiv Eikon data showed.

Meanwhile, Azerbaijan's 200,000-bpd STAR refinery in Turkey is slowly ramping up and will be a new competitor for dwindling sour oil.

Designed to run on sour grades such as Russian Urals and Iraqi Basra and Kirkuk, the refinery took 184,000 bpd of Urals in March, Refinitiv Eikon data showed.

"One expected STAR's launch to be a serious jolt for the market, but little did we know it would make the sour shortage this bad ... refiners are rushing for sours," a European trader said.

As the supply-side structure has changed, the spread between sour and the historically far more expensive light, sweet crude has thinned and even flipped in some instances.

In the Mediterranean, the light grade Kazakh CPC Blend trades at a discount to Urals and Kurdish crude, which used to be one of the region's cheapest oils.

The Urals price out of the Black Sea has also increasingly traded at a premium to Urals out of Baltic ports - previously a rare occurrence. The trend has prompted commodity price-reporting agency S&P Global Platts to start an industry consultation on changing how the Urals market is assessed.

"All refiners are looking for Urals or a Urals replacement," said a third trader in an international trading firm. "And we see that it won't be enough for everyone."

gdpetti ·

Regional development for the NWO command structure.... out with the OWO, in with the NWO.... thus the idiocy in the West as it outs itself in this prep work for global regime change... the American Empire simply isn't needed in it.... 'others' will take the reins soon enough.... but until then, let the outing continue...

It makes good theater of the absurd.... if we are going to go down in flames, best to enjoy the show, right?

RBHoughton

I believe its not just the departments of the US Government that inhibit purchases of Venezuelan crude or any other sanctioned goods. There is also the attitude of the banks that handle the transactions. They have been repeatedly hit with huge fines for facilitating trade to the point that they are reluctant to provide facilities to any country that Washington DC dislikes whether there are sanctions in place yet or not. This seems to be particularly true of European banks.

The effect on world trade is threatening to us all including USA. The sanctions policy cannot be maintained for long without hurting us as well. A second limitation on its usefulness is the efforts of the world's trading countries to agree alternative finance to the USD which is nearly complete now. Once that new financial system is floated, sanctions will have to end.

[Apr 12, 2019] If my guess is correct, we will see KSA production declining on a accelerating rate within a few years. Kuwait will not be far behind. North American shale will likely be topped out by then. Gee, that might be post peak.

Notable quotes:
"... We can, however, demand reserve transparency in our own country and that we are NOT getting. In essence the lies being said about "economically" recoverable shale oil reserves in America are way bigger whoppers than any lies the Middle East has ever told. ..."
"... U.S. shale drillers have run into a series of problems that have resulted in increased scrutiny on their operations. The difficulties span their operations – production issues, poor financials and less love from Wall Street. ..."
"... Even as WTI has moved solidly above $60 per barrel, the U.S. shale industry is trying to find ways to right the ship. As Reuters reports, a series of drillers, even prominent ones, are laying off workers. Pioneer Natural Resources – often held up as one of the better of the bunch – and Laredo Petroleum announced just this week that they will be cutting staff. As Jennifer Hiller of Reuters points out, Pioneer has not laid off workers since 1998. ..."
"... In March, Devon Energy eliminated 200 jobs. ..."
"... According to a report from Tudor, Pickering, Holt & Co., the recent layoffs may not be the end of the story. Everyone should expect more job cuts "over the coming quarters as companies address right-sizing the corporate cost structures," the firm said in its report. ..."
Apr 12, 2019 | peakoilbarrel.com
xxx: 04/10/2019 at 10:56 pm

Hello Dennis. Have you ever really thought about why the Saudi's would keep their production info as a state secret? I think it has much less to do about quotas than maintaining the status quo of a country and society much different than our western norms.

I have guessed their remaining reserves around 80 gb before, and still believe its in that area. Of course ANYONE without actual production and reservoir info is also guessing whether they are economists, engineers, geologists, or whoever.

If my guess is correct, we will see KSA production declining on a accelerating rate within a few years. Kuwait will not be far behind. North American shale will likely be topped out by then. Gee, that might be post peak.

I hope they have more recoverable oil than my guess, because its going to be a difficult transition.

Mike Shellman : 04/11/2019 at 6:39 am

Mr. Patterson, thanks for the article. You have defended it quite well, this in spite of Dennis Coyne's constant interjections.

Estimating remaining reserves from mature fields is not difficult from an engineering standpoint and how one tinkers with known reservoirs in that field (stuffing gas back into them, HZ laterals above O/W contacts, etc.) does not magically create "new" reserves, it simply speeds up the rate of extraction (arrests natural decline rates). The Saudis lie about their sovereign wealth and it's their right to lie, I suppose; all we can do is try to outsmart them, as you have. America cannot control the Saudi's, regardless of tweets.

We can, however, demand reserve transparency in our own country and that we are NOT getting. In essence the lies being said about "economically" recoverable shale oil reserves in America are way bigger whoppers than any lies the Middle East has ever told.

Ron Patterson : 04/11/2019 at 7:26 am
Mike, thanks for the kind words. I am quite used to Dennis' interjections. They don't bother me. In fact, I enjoy the dialogue with him. It keeps me on my toes.

I can feel the tide turning concerning peak oil. I think OPEC peaked in 2016, politically suppressed production notwithstanding. However, the bigger surprise may be right here in the good old USA. The shale bubble could be bursting a lot sooner than a lot of people think.

Shale Jobs In Jeopardy Despite Oil Price Rally

U.S. shale drillers have run into a series of problems that have resulted in increased scrutiny on their operations. The difficulties span their operations – production issues, poor financials and less love from Wall Street.

Even as WTI has moved solidly above $60 per barrel, the U.S. shale industry is trying to find ways to right the ship. As Reuters reports, a series of drillers, even prominent ones, are laying off workers. Pioneer Natural Resources – often held up as one of the better of the bunch – and Laredo Petroleum announced just this week that they will be cutting staff. As Jennifer Hiller of Reuters points out, Pioneer has not laid off workers since 1998.

In March, Devon Energy eliminated 200 jobs.

According to a report from Tudor, Pickering, Holt & Co., the recent layoffs may not be the end of the story. Everyone should expect more job cuts "over the coming quarters as companies address right-sizing the corporate cost structures," the firm said in its report.

Nevertheless, the EIA still expects the boom to continue for years and years. We shall see.

[Apr 12, 2019] It looks to me like the global economy may be in for at least one serious oil shock in the 2020s. Yet another titanic wave on the Peak Oil ocean.

Apr 12, 2019 | peakoilbarrel.com

Graywulffe x Ignored says: 04/10/2019 at 5:55 pm

Nice summary, Ron. Brought to mind the old Oil Drum days. Thanks for taking the time to provide this information. Given the admittedly not high-confidence prognostications in Saudi/world oil production, it looks to me like the global economy may be in for at least one serious oil shock in the 2020s.

Yet another titanic wave on the Peak Oil ocean.

[Apr 12, 2019] It is very obvious that what Saudi will have difficulties to maintain the current level of production as giant fields will experience a more rapid decline in the future.

Notable quotes:
"... add to that the usual woes of increasing internal oil consumption (3 mbd and rising fast) and the need to try and build their way out of their demise (requiring more oil and money), and the usual predictions of the 'export land model' look very reasonable, and disastrous for the House of Saud. There will be a tapered end, but the potential for acute instability in production and the in political and social environments of the country within the next decade is real. ..."
Apr 12, 2019 | peakoilbarrel.com

Carlos Diaz : 04/10/2019 at 1:44 pm

It's "coup de grâce."

A great article that offers a more realistic view of the very old giant oil fields. It is very obvious that what they are doing to maintain production will result in a more rapid decline in the future. When that happens KSA will be in a lot of hurt, and the world will have an abrupt awakening.

Adam Ash : 04/10/2019 at 5:27 pm
So my simple math says: 256 URR was to last 53 years, 74 URR at the same production rate will last 15 years. Seneca with a vengeance! Rite? EOLAWKI here we come!

add to that the usual woes of increasing internal oil consumption (3 mbd and rising fast) and the need to try and build their way out of their demise (requiring more oil and money), and the usual predictions of the 'export land model' look very reasonable, and disastrous for the House of Saud. There will be a tapered end, but the potential for acute instability in production and the in political and social environments of the country within the next decade is real.

[Apr 12, 2019] At some point Saudi will hit the Seneca Cliff. If they are doing all this advanced recovery to to keep flow rates up then fields will probably hit a wall and crash rather than slow decline.

Notable quotes:
"... Oil consumption has been increasing in all sectors and the growing global economy will require more oil in industry. You seem to think oil is just used in transportation. NOT true. ..."
"... Imagine oil production peaked today. In order for aviation to continue to grow, along with other industries that use oil. How many of the 98 million vehicles sold this year would need to be electric cars? How many electric motorcycles would have to be sold? ..."
"... I believe a Seneca cliff scenario would be a catastrophic one hence the reaction to such a scenario would also be catastrophic. ..."
"... World demand is currently over 100 mb/day, while production is at about 99 mb/day. Does that mean we are using up the already produced reserves? ..."
Apr 12, 2019 | peakoilbarrel.com

Karen Fremerman : 04/10/2019 at 12:17 pm

At some point the Seneca Cliff will be hit. If they are doing all this advanced recovery to to keep flow rates up then fields will probably hit a wall and crash rather than slow decline. Is my thinking correct on that? Karen
Hugo : 04/11/2019 at 2:20 am
Dennis

Oil consumption has been increasing in all sectors and the growing global economy will require more oil in industry. You seem to think oil is just used in transportation. NOT true.

https://www.statista.com/statistics/307194/top-oil-consuming-sectors-worldwide/

Imagine oil production peaked today. In order for aviation to continue to grow, along with other industries that use oil. How many of the 98 million vehicles sold this year would need to be electric cars? How many electric motorcycles would have to be sold?

https://motorcyclesdata.com/2019/03/25/world-motorcycles-market/

Knowing these answers gives us a real understanding of what needs to happen.

Schinzy : 04/11/2019 at 3:42 am

The Seneca cliff for World output requires heroic assumptions which are unlikely to be true in practice.

I strongly disagree with that assessment. I believe the probability of a Seneca cliff is increasing. I think oil extraction is an economic phenomena, not a geological phenomena. During economic expansion, a positive feedback loop is in place: oil extraction produces economic growth which encourages investment in oil extraction producing more economic growth. Once peak oil occurs, I anticipate that this feedback loop will go into reverse: decreased oil production will produce economic contraction which will discourage investment in oil extraction reducing extraction rates leading to economic collapse.

Without investment the IEA estimates that production would fall by 50% in 2025 and by 80% in 2040.

I actually think economic collapse is a great opportunity to introduce a new economic system. The one we have is not only unfair, it encourages environmental devastation.

David Graebner asks rhetorically how a theory such as neoclassic economics based on false hypotheses perdures. His answer is that you teach the biggest lies in the first year. That's why false preconceptions about the economy are so common. I think neoclassical economics chose the wrong mathematical tool to analyse the economy, they chose optimisation. I don't see anything optimal in the economy, I think differential systems would be a much more appropriate mathematical tool with which to analyse the economy, keeping track of money flows.

Our assessment of how the oil cycle will play out can be found here: https://www.tse-fr.eu/publications/oil-cycle-dynamics-and-future-oil-price-scenarios .

Iron Mike : 04/11/2019 at 6:05 am
Hi Ron,

I assume a Seneca cliff scenario would imply rapid economic collapse, as a result i think there will be war over resources. Between which countries i don't know, but i assume U.S will go to war with Russia and or China, via direct war or proxy wars in regions were the countries national security depends on specific resources. So the middle east would as usual be a key area of conflict.

I believe a Seneca cliff scenario would be a catastrophic one hence the reaction to such a scenario would also be catastrophic.

Fred Magyar : 04/11/2019 at 8:30 am
U.S will go to war with Russia and or China, via direct war or proxy wars in regions were the countries national security depends on specific resources.

Perhaps! However modern warfare tends to be very energy intensive. It seems to me a rather safe bet that in a post peak oil world, mostly running on renewables, it might be more likely that societies will be trying to conserve their energy resources and not waste it on war.

But the verdict is not yet in, on whether or not humans are smarter than yeast!

German Guy : 04/10/2019 at 12:53 pm
World demand is currently over 100 mb/day, while production is at about 99 mb/day. Does that mean we are using up the already produced reserves?
Dennis Coyne : 04/10/2019 at 3:03 pm
German Guy,

It simply means we are using oil that is being stored, the so-called oil stocks, eventually as these are reduced, oil prices start to rise and demand (consumption) decreases while supply (production) increases in response to the change in oil price.

[Apr 12, 2019] The northern three Saudi fields reached their Seneca Cliff somewhere around 2010 and began declining at several times 2%. They will decline to near nothing in the next few years

Apr 12, 2019 | peakoilbarrel.com

Ron Patterson : 04/10/2019 at 4:06 pm

Well, no, Ghawar is not declining at 2% per year. Ghawar did not start declining in 2004. And the southern two fields are not declining at all. The northern three fields reached their Seneca Cliff somewhere around 2010 and began declining at several times 2%. They will decline to near nothing in the next few years. Then Ghawar will have level production at somewhere around 2 million barrels per day and hold that level for a decade or two.

Ghawar cannot possibly be adequately described as one field. It is five different fields with five different decline and depletion rates.

When Saudi said, in 2006, that their average decline rate was down to almost 2%, that was the average for all their fields. Some fields were declining at a much faster rate and some fields were not declining at all. Khurais and Manifa were still to be ramped up. Those fields had been in mothballs and would be brought back on line. Now they are likely not declining at all but other fields are declining at a much faster rate than 2%.

But here is the important point. The depletion rate is another matter altogether. That figure is likely above 8% per year.

Ron Patterson : 04/10/2019 at 7:08 pm
Do you have production data for the various fields from 2006 to 2018?

Dennis, you know better than ask such a silly question. Saudi production of individual fields is a closely guarded secret.

Dennis, have you ever wondered why the Saudis keep all this data such a secret? Why don't they just let the actual data known to the world? What was the production data from Safaniya in 2018? Or what was the production data from Manifa in 2018? Or what was the production data from Khurais in 2018, or from Berri, or from all their other fields? And how did that compare to the production in 2017, or 2016?

Dennis, we don't know shit about any of this. We don't know because it is a closely guarded secret. Why, Dennis, Why?

They know Dennis, they know and they don't want you to know. Why?

I know why Dennis. Because what they actually report, which is almost nothing, is a lie. You simply choose to believe it. I do not. I choose to believe the analysis who try to figure out why they are lying. You choose to simply believe the Saudis.

Dennis, the idea that Saudi Arabia has 266 billion barrels of reserves is preposterous beyond belief. Even the Saudis realize that now are trying to slowly reduce that figure. Yet some people, like you, Robert Rapier and Michael Lynch, seemed perfectly ready to believe such an absurd figure. That just floored me. Goddammit, have some people gone insane?

Okay, I have said my peace here and showed my ignorance as to what Saudi Arabia actually can produce for the next 50 years. But you know, it is what they say they can produce.

You believe them. I don't. And neither of us can prove our case. And there it must rest until the actual production data comes in next year and next year and ..

Eulenspiegel : 04/10/2019 at 10:41 am
Good work Ron.

When this is true, that's the reason China is pushing electric travel as hard as they can.

They have more possibilites to know the truth (secret service) than we reading reports. And with SA and Russia having only round about 80 GB left, and producing each round about 10 mbpd, there are not many years left before a major oil incident.

I wonder why oil prices are that stable at the moment. Oil production fell hard this year so far, down everywhere except USA. And there the growth is decelerated.
And demand is still climbing, it will use up all the US growth projected by the optimistic EIA.
A 500 kbpd decline from OPEC is not included here, they still calculate with an increase from opec.

Last question: Where is Russia standing at the moment?

[Apr 12, 2019] Looks like Saudi Arabia counts internal consumption as revenue

Notable quotes:
"... Saudi Arabia, in 2018 produced approximately 3.76 billion barrels of crude only. Their BOE produced was approximately 4.75 billion barrels. That would account for the revenue is they sold every barrel of it. But they consumed a lot themselves. So other than that I have no explanation. Do they count their own consumption as revenue? ..."
Apr 12, 2019 | peakoilbarrel.com

Chris Martensonx : 04/10/2019 at 11:05 am

Ron,

I'm wondering if you can help solve a mystery.

In the bond prospectus SA revealed their financials. Puzzling to me was the claim of revenue of $356 billion.

Why puzzling?

Because Brent averaged ~$75/bbl in 2018. Divide $356 by $75 and you come up with 4.75 Gbbl, which when we divide by 365 days in a year, we get 13 million barrels per day production.

???

I can't get their numbers to work. Even with a 10% premium on their grades of crude (generous), that leaves 11.7 mbd of production . I can't get anything to line up here.

Any ideas?

Dennis Coyne : 04/10/2019 at 11:15 am
Chris,

They also produce NGL and natural gas, in 2016 it was about 1.94 Mb/d or 708 MMb of NGL, I have no idea what the average selling price is for NGL on World markets, it would depend on the mix of NGL of course.

Ron Patterson : 04/10/2019 at 11:31 am
Saudi Arabia, in 2018 produced approximately 3.76 billion barrels of crude only. Their BOE produced was approximately 4.75 billion barrels. That would account for the revenue is they sold every barrel of it. But they consumed a lot themselves. So other than that I have no explanation. Do they count their own consumption as revenue?
Dennis Coyne : 04/10/2019 at 11:54 am
EIA has about 4.5 Gb of total liquids produced by KSA in 2018, that would imply $79/boe average selling price.

I suppose in accounting terms the Saudi Government could pay Aramco for the subsidized oil and the 4.75 Gbo would give us the $75/boe selling price.

[Apr 09, 2019] Rate of decline of production of shale wells is simply unsane up to 60% a year

Apr 09, 2019 | peakoilbarrel.com

Energy News says: 04/08/2019 at 9:26 am

Ron Patterson: 04/08/2019 at 10:26 am
An annual decline rate of 57.5 percent is insane. Yet 3,541,921 bo/day from 2018 wells is even more insane. Shale oil is a phenomenon no one would have believed just a few years ago.

But now it is obvious that this juggernaut called shale oil is slowing down. And its crash will likely be more shocking than its rise.

[Apr 09, 2019] The danger of Seneca cliff on oil production is growing

Apr 09, 2019 | peakoilbarrel.com

Carlos Diaz: 04/08/2019 at 8:07 pm

The decline is likely to be less steep than the increase

Have you heard about a Seneca cliff? It is called that way because Seneca in his letter number 91 to Lucillius (Epistulae Morales ad Lucilium), written towards the end of the year AD 64, a year before he died, refers to the fire that destroyed Lugdunum (Lyon) the summer of that year in the following terms:

It would be some consolation for the feebleness of our selves and our works, if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.

It appears he knew almost two thousand years ago what you don't.

Hickory: 04/09/2019 at 10:12 am
I expect that a long slow declining tail of production will have some abrupt jolts downward along the way, and end up lower quicker as a result.

The jolts downward will come as producing countries become failed states and the chaos disrupts operations.

For examples of how this comes to be, just look at the past 5 yrs of Venez and Libya as examples. Sure they may pick back up at some point, but overall effect is diminished global production, well below a theoretically well managed industry.

Secondly, (and likely a smaller effect) some deposits will likely be kept in the ground because of choices some cultures make. For example, I could see the USA deciding to keep its large remaining coal deposits largely in the ground after 2030. Canada could decide to put a big constraint on oil sand production, keeping just enough for domestic use, if they so desired.

Carlos Diaz: 04/09/2019 at 7:12 pm
Why you think such scenario is so improbable? Venezuela is living a Seneca cliff in its oil production right now. Did anybody predicted it before it took place?

We have no idea of what will happen after Peak Oil. Some people assume nothing, while others think it will be the end of our civilization. Somewhere in between probably. But I fail to see how the economy can take it well if for most applications we can't substitute oil. The globalization is run on oil and its derivatives.

Your assumptions can only be valid at this side of the peak. If you think otherwise you fool yourself.

[Apr 07, 2019] The Ultimate Pivot Saudi Betrayal Of The Petrodollar

Apr 07, 2019 | www.zerohedge.com

Authored by Tom Luongo,

Saudi Arabia has gone nuclear, threatening the petrodollar . Or has it?

The report from Zerohedge via Reuters that Saudi Arabia is angry with the U.S. for considering a bill exposing OPEC to U.S. antitrust law is a trial balloon.

The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom's annoyance about potential U.S. legal challenges to OPEC.

If these things are so unlikely then why make the threat public? There are a number of reasons.

First, one must remember that the Saudis are hemorrhaging money. Their primary budget deficit in 2018 was around 7% of GDP. Since the 2014 crash in oil prices it has gone from almost zero sovereign debt to $180 billion in debt to finance its spending, or around 22% of GDP.

2019's budget will be even bigger as it tries to deficit spend its way to growth. It's needs for a higher oil price are built into their primary budget not their production costs, which are some of the lowest in the world.

Second, the Saudis finally opened up t he books on Saudi-Aramco this week. And it revealed the giant is far more profitable than thought. It has is eye on acquiring stakes in some of the biggest oil and gas projects out there these past couple of years. It's floating its first public bond to buy a stake in SABIC to get into the mid and downstream petroleum markets.

Third, the Saudis budget deficit is tied directly to its having pegged the Riyal to the U.S. dollar which leaves them at the mercy of the dollar price of oil. It doesn't have the flexibility of Russia who free-floated the ruble back in late 2014 to pay local expenses in devalued local currency when oil prices drop.

This is why the Saudis are struggling financially and why Aramco is looking to use its financial might to finally begin making friends and influencing people around the world.

So, a threat to de-couple Saudi oil sales from the dollar is a threat a long time coming. I've been talking about this day since I started this blog and for years previous when I wrote for Newsmax.


MalteseFalcon , 5 minutes ago link

China is now the largest consumer of SA oil, so the clock is ticking on the petrodollar.

Aramco is super profitable. The oil scam of the last 45 years has fucked the West in the a$$.

D-plorable , 35 minutes ago link

"A decade of ZIRP has created a massive synthetic short position in the dollar in the form of emerging market corporate and real estate debt.

But after that? And after that synthetic short pushes the dollar much higher and the price of oil into the floor?"

Honrst question to the economics gurus on ZH:

How does a short position on the dollar push the price higher?

steverino999 , 36 minutes ago link

Saudis should flip Trump the bird and start selling their oil in yuan or euro, and buy weapons from Russia. America's stranglehold over global economics is coming to an end, all because of Donald Trump.

yerfej , 13 minutes ago link

Yes this has to be true and of course nothing before trump had anything to do with anything it is all a mirage.

carman , 48 minutes ago link

"Rome" is burning, and that's just what it deserves. Decades of endless wars and it's "clipping" of the currency, will end with collapse. Many of its citizens can't raise $400. for an emergency but they can have their Netflix and Prime subscriptions to pay for. Hey, War Inc. is reaching its end.

roadhazard , 1 hour ago link

The Saudis are trapped. They have All US military equipment and have to have US hands to operate their air force and who knows what else. Plus they have too many skeletons that the US can hurt them with.

ThomasEdmonds , 1 hour ago link

"Peace for Israel" would include outside businesses or investors sticking to BDS actions. Other than the United States and Europe, natural law would suggest no of law should instruct any counterparty as to what Israel entity one should or should not engage in commerce.

In another time it was called free market capitalism.

Israeli lobbies shouldn't be able to squelch the First Amendment by requiring public servants to sign agreements not to condemn Israel-related foreign policy or domestic decisions.

Boing_Snap , 2 hours ago link

The empire of paper currency and oil supported by bankers and their wars is coming to an end.

Fracking is a desperate attempt at keeping internal oil production going, it's akin to burning the roof shingles of your house to keep warm. The costs to get the oil outweigh the usefulness of the endeavor, the only ones benefiting are the bankers loaning the money to the frackers.

Rome did the same it self destructed, and rotted internally, meanwhile the cost of empire drained resources and the vassals began to act in their own self-interests. The Khazarian bankers remained the host drained, and they began to leech the new fledgling empires.

https://www.historynet.com/why-rome-fell.htm

frankthecrank , 2 hours ago link

Where do you see bankers in that history? Rome devalued its own gold coins by mixing tin in with it. The soldiers felt cheated. Meanwhile, Rome allowed mass migration to Rome and southern Italy prompting real Romans to move to Gaul (northern Italy was "Cisalpine Gaul"). Rome wasn't even the capitol when it was sacked--Ravenna was. Get your history straight. Real Romans were not willing to fight for city that wasn't their own anymore.

So too, what will bring down the US is mass migration from the third world--just what the Comintern wanted 90 years ago.

Keter , 2 hours ago link

The US petrodollar reserve currency status has been a disaster for middle class Americans much to their ignorance. It has allowed the financial-political cabal elite to enrich themselves at the expense of deficit and debt expansion while impoverishing the middle class and bringing in replacement labor serfs. Time to rip this band-aid off and the American middle class to reclaim their country, that will probably ultimately lead to revolution.

Pro_sanity , 2 hours ago link

It must, I do wonder if violence can be avoided?

sanctificado , 2 hours ago link

Suure, blame Saudi Arabia for the "betrayal". But of course overlook the fact that the US Congress passed a law that put 9/11 squarely on SA's shoulder when Israhell is the one that did 9/11 .

Keter , 2 hours ago link

Operation Northwoods redux; the Mossad may have had a big role, but it could not have been pulled off without complete acquiescence from the DIA. It is all part of the long game. {See Donald Rumsfield handling empty gurney on Pentagon grounds}

Milton Keynes , 2 hours ago link

" Second, the Saudis finally opened up t he books on Saudi-Aramco this week. And it revealed the giant is far more profitable than thought. "

I would place about as much credibility in the Aramco books as I would in Bernie Madoff's books.

Aramco pumps oil, that's about all we really know for sure. Given the intertwining with the saudi state, it's not a conventional oil company in any manner, it's much more a PDVSA then a StatOil.

To Hell In A Handbasket , 2 hours ago link

Buys oil how? You fuckers have been printing paper and buying resources with it. You guys simply lack the ability to extrapolate, because if you did, the current lifestyle of the USSA, without dollar world reserve status and the petrodollar perk, is utterly ******* horrendous.

Never will the axiom "I never knew how good I had it, until it was gone" be more apt, when the USSA faces her date with reality. $22 trillion in debt, world reserve currency, petrodollar, Wall Street a cesspit of financial fraud, no adverse market reaction to continuous money printing and has the audacity to complain trade deficits and OPEC? lol

Death to the USSA cannot come soon enough. A parasite nation of resource theives and the world knows it.

Pro_sanity , 2 hours ago link

Sorry here comes an ad hominem, the Saudi's are emblematic of all Arabs: cowards.

cashback , 2 hours ago link

What a motherfuckin degenerated bastard.

Palestinians with stones and sticks against F-35's and M-16's kick the balls of Jews and have been doing so for the past 100 years.

Iraq, Libya, Syria, Yemen and everywhere the Anglo-Zionists have waged war, Arabs have put on a resistance that left the aggressors astonishing.

And for the fact: Arabs created the biggest empire known to men in the matter of 80 years that was almost 3 times bigger then the mighty Rome.

White snowniggers like Pro-sanity **** their pants by what Arabs have done.

InTheLandOfTheBlind , 3 hours ago link

why is it not reported that through Citigroup, the Saudis hold a large financial interest in shale production?

[Apr 07, 2019] There is no doubt the tight rock structures which are much more difficult to extract oil from than sandstone reservoir can be stimulated in different ways with good result. But that costs a lot of money.

Highly recommended!
Edited for clatiry
Notable quotes:
"... Better propant , longer laterals , some improvement of fluid , improved rigs and pads enable to drill several laterals simultaneously have made the improvement they call shale revolution. ..."
Apr 07, 2019 | peakoilbarrel.com

Freddy says: 04/06/2019 at 5:26 pm

There is no doubt the tight rock structures which are much more difficult to extract oil from than sandstone reservoir can be stimulated in different ways with good result. But that costs a lot of money.

As I read fracking uses a very high hydraulic pressure open up the tight rock layers and until a few years ago the oil flow dropped at a very early stage because the overlaying weight and beacuse the oil flow carries with with itself particles that block the fraction.

Later it followed a propant research that was done before but again this gave improvement and could hold the fracs open for longer.

Than there was research on chemical injected that should reduce friction between oil flow and rock. There is also lots of other factores like gazes, metal that in certain pressures, temperatures might react and create pollutant as happened lately when oil cargo was sent back from Asia.

Better propant , longer laterals , some improvement of fluid , improved rigs and pads enable to drill several laterals simultaneously have made the improvement they call shale revolution.

Still very few are able to earn money to pay dividend, loan, interest and finance expansion with WTI 60 USD.

Now number of rigs increasing again, but why when there are so many DUCS? Probably because investors tells the business shall be cash neutral. Could it be the DUCS are so closely spaced that using along with the existing wells might be not profitable because of interference with nearby wells.

[Apr 06, 2019] Of course the Saudis are laughing at Trump. The world is laughing at Trump. He is an ignorant baffoon.

Apr 06, 2019 | peakoilbarrel.com

vonfleck, 04/05/2019 at 4:53 pm

All quiet on the saudian front…

https://www.arabianbusiness.com/energy/416992-saudi-aramco-reveals-sharp-output-drop-at-worlds-largest-oil-field

Ron Patterson x Ignored says: 04/06/2019 at 12:24 pm

Trump Declares War on OPEC, Saudis Laugh as Oil Price Surges

Donald Trump is ramping up his attack on oil prices as US crude hit a 5-month high today. While up to now the US president has been focused on denouncing high energy costs via Twitter, it appears he now is looking to do more than merely bash OPEC online. As CNBC reported, the US wants to ensure "dominance" in this sector through a blockbuster executive order designed to boost pipeline infrastructure. In reality, Trump walks a dangerous tightrope when it comes to crude.

Of course the Saudis are laughing at Trump. The world is laughing at Trump. He is an ignorant baffoon.

likbez says: 04/06/2019 at 7:59 pm

Of course the Saudis are laughing at Trump. The world is laughing at Trump. He is an ignorant baffoon.

May be ignorant bully, not only (or so much) baffoon ? He practices what is called “gangster capitalism” on international arena for some time. Totally ignores international law. Does not even use a fig leaf as previous administrations. Trump is “Full Spectrum Dominance” in action 😉

In view of the Saudi role of the guarantor of the “dollar as the reserve currency” system his behavior might well be a reckless move, which totally contradicts Trump’s behavior in Khashoggi case. Kind of direct pressure is Soprano style: “Do what I want, or…”

If Saudi stop selling oil for dollars that will be a very bad news for the USA. Hopefully they can’t do this being a Washington vassal, but to insult a vassal is not the best diplomacy, anyway.

Why Trump can’t understand that oil is limited and higher prices might well be the best strategy as they helps to find alternatives, develop infrastructure (for example for EV passenger cars) and prepare to inevitable shortages, or even the Seneca Cliff in oil supply.

Why he wants to propel/sustain the US stock market at any cost?

Low oil prices can help to kick the neoliberal can down the road, but they can’t save the USA from the “secular stagnation” and might not be able to save the USA from the recession too because consumption is low: credit card debt reached 0.87 trillion in the fourth quarter of 2018 On other words the bottom 80% of the USA population might well be debt slaves of the US banks.

On March 25, 2019 yields curve inverted the first time since mid 2007: The yield on the U.S. 10-year Treasury note dipped below the yield on the 3-month paper.

In other words secular stagnation is the result of the crisis of neoliberalism both as the ideology and as the social system dominant in the world. Neoliberalism entered “zombie” stage in 2008 and it continues to exist (and even counterattack, as in Argentina and Brazil) only due to the fact that there is no acceptable alternative and the return to the New Deal capitalism (which many wish) is difficult or impossible because management now is allied with the capital owners, not with workers (as was temporary the case after the Great Depression; that alliance ended in 70th).

I just do not understand if Trump is on drags such as amphetamine, see rumors at https://heavy.com/news/2016/10/donald-trump-drugs-drug-use-sniffing-sniffles-cocaine-clinton-debate-test ; BTW captagon was/is a favorite drag of ISIS headchoppers which allowed them to demonstrate the level of toughness in fight and self-sacrifice they did, as it switches off the instinct of self-preservation enhancing the person’s ability to do dangerous things. ( https://www.vox.com/world/2015/11/20/9769264/captagon-isis-drug ).

Or he is a “naturally stupid” bully, who does not care to learn diplomatic etiquette and some elements of diplomacy, while on the job.

In both cases he is a real embarrassment for the nation, is not he?

While I do not support Russiagate witch hunt, his behavior really raises questions about fitness for the office.

Also Bush II style (as in Iraq WDM fiasco ) bunch of crazy warmongers, neocons that control Trump administration foreign policy (Haley in the past, Pompeo, Bolton now ) is not what his voters expected based on his election promises.

In a sense, he proved to be Republican Obama, another master of “bait and switch” maneuver.

Looks like we are living during what Chinese call “interesting times”, aren’t we ?

[Apr 06, 2019] Remember Peak Oil? It's back!

Notable quotes:
"... Hubbert wrote in 1948: "How soon the decline may set in is not possible to say, Nevertheless the higher the peak to which the production curve rises, the sooner and sharper will be the decline." ..."
"... In fact, Ghawar is not as resilient as we were led to believe. We just found out that its output has fallen substantially since Aramco previously came clean on its reserves and production. If Ghawar is losing momentum fast, peak oil – remember that theory? – might be closer than we had thought. And Ghawar is just one of dozens of enormous conventional-oil reservoirs scattered around the planet that are in various stages of decline. ..."
"... Those include the North Sea, Alaska's Prudhoe Bay, and Reguly reminds us that Mexico's Cantarell reservoir used to supply 2.1 million barrels a day and is now down to 135,000. ..."
Apr 06, 2019 | peakoilbarrel.com

Ron Patterson 04/06/2019 at 12:05 pm

Remember Peak Oil? It's back!

It seems that the biggest Saudi field is losing its punch.

Years ago we used to talk a lot about peak oil, the prediction made by M. King Hubbert that the easy oil was going to run out, that it was going to get harder and harder to find the stuff, and it was going to get more and more expensive to get out of the ground.

Hubbert wrote in 1948: "How soon the decline may set in is not possible to say, Nevertheless the higher the peak to which the production curve rises, the sooner and sharper will be the decline."

According to the predictions made back in 2005, right about now the Saudis are running out and we are smack in the middle of confusion, heading for chaos. Of course we are not, we are flooded with fossil fuels, thanks to the fracking boom.

But according to Eric Reguly, writing in the Globe and Mail, there is trouble ahead, because that prediction about Saudi oil may not be that far off. He writes that the giant Ghawar field used to produce ten percent of the world's oil, five million barrels a day.

The US Permian shale basin now supplies 4.1 million barrels a day, but fracked wells run out pretty quickly, and the fracking companies are all losing money. Better sell that pickup truck; it may well cost a lot more to fill it. As Reguly concludes, the Ghawar field is indeed in trouble,"and if it does collapse, peak oil will come a bit sooner."

In fact, Ghawar is not as resilient as we were led to believe. We just found out that its output has fallen substantially since Aramco previously came clean on its reserves and production. If Ghawar is losing momentum fast, peak oil – remember that theory? – might be closer than we had thought. And Ghawar is just one of dozens of enormous conventional-oil reservoirs scattered around the planet that are in various stages of decline.

Those include the North Sea, Alaska's Prudhoe Bay, and Reguly reminds us that Mexico's Cantarell reservoir used to supply 2.1 million barrels a day and is now down to 135,000.

[Apr 06, 2019] According to Art Bergman the Permian is flattening/rolling over.

Apr 06, 2019 | peakoilbarrel.com

Karen E Fremerman x Ignored says: 04/05/2019 at 6:40 am

Maybe I missed something and you guys have already talked about this but have you guys listened to Art Berman's Macrovoices podcast?

https://www.macrovoices.com/podcasts/MacroVoices-2019-03-14-Art-Berman.mp3

He is basically showing that the Permian is flattening/rolling over. See slide 11:

https://www.macrovoices.com/guest-content/list-guest-publications/2598-art-berman-slide-deck-march14-2019/file

If you listen to the interview he has lined up the 7 month lag time with Rig Count and Lagged Production. If this ends up sticking then the production flattening should show up in July. Just wanted to hear what you guys have to say about it.
Thanks! Karen

[Apr 06, 2019]